Compensation and Incentives in Family Firms

Dear Colleagues,

Family firms are a unique form of organization in which a family or a group of families exercise substantial influence in the business strategic and operational choices (Chua, Chrisman, & Sharma, 1999). They play a key role in the world economy, since most firms around the world are family businesses (Sharma, Melin, & Nordqvist, 2014). This relevant role, together with the challenge to understand how family firms attract, retain, and develop qualified employees in a complex context where family, business, and ownership overlap (Astrachan & Kolenko, 1994; Lansberg, 1983), have encouraged scholars to analyze compensation issues in the context of family firms.

Compensation is presumably one of the most critical determinants of the quality and effectiveness of the workforce performance for any firm. An effective system of compensation can act as a mechanism that not only elicits firm value-increasing behaviors from current employees but may also increase the odds of attracting high-quality employees (Chrisman, Devaraj, & Patel, 2017). The design and implementation of compensation policies not only can affect the motivation and performance level of the workforce but also can be harnessed to improve safety, creativity, innovation, and myriad other outcomes critical in a successful workplace (Gupta & Shaw, 2014).

At present there is an increasing body of literature that analyzes compensation in family firms, indicating their heterogeneity through factors and results linked to several compensation policies. However, despite remarkable evidence that family firms might enjoy positive outcomes given the importance placed on compensation (Carlson, Upton, & Seaman, 2006; Schulze, Lubatkin, Dino, & Buchholtz, 2001), there are still three main gaps around this topic in the literature that this Special Issue proposes to move forward. First, since there has been a major research interest on managerial compensation in family firms, we still know little about compensation and incentive policies applied at non-managerial levels, and much less about situations in which family and non-family employees are working together (from an empirical point of view at least), which it is surprising, since family duality is inherent to the nature of this kind of firm.

Second, several mixed results have been presented around compensation. For example, when comparing family and non-family firms, some scholars have noted contradictory results from incentive-based compensation and variable pay (e.g., Carrasco-Hernández & Sánchez-Marín, 2007; Chen, Hsu, & Chen, 2014; Cohen & Lauterbach, 2008). When exploring differences between family and non-family managers, scholars have obtained mixed results in total compensation and incentive-based performance (e.g., Berrone, Makri, & Gómez-Mejía, 2008; Gómez-Mejía, Larraza-kintana, & Makri, 2003; McConaughy, 2000). Contradictory results have also emerged when scholars have analysed how the level and composition of executive compensation is influenced by the independence of the board (Cheng & Firth, 2006; Veliyath & Ramaswamy, 2000), by the stock ownership of institutional investors (Croci, Gonenc, & Ozkan, 2012; Gómez-Mejía et al., 2003), or by the percentage of family ownership (Jaskiewicz, Block, Combs, & Miller, 2017; Young Baek & Fazio, 2015).

Third, from a theoretical perspective, despite the fact that agency theory has been the main theoretical framework used to explain compensation issues, this framework has displayed inconsistencies in some family firm contexts (De Kok, Uhlaner, & Thurik, 2006; Schulze, Lubatkin, & Dino, 2003). This Special Issue encourages scholars exploring other more contextualized frameworks for explaining family firm compensation practices. In this vein, we would expect an increase on works built from a more family firm-idiosyncratic theoretical basis such as the extended agency approach (Schulze et al., 2001), the bifurcation bias framework (Verbeke & Kano, 2012), familiness (Habbershon, Williams, & MacMillan, 2003), socioemotional wealth approach (Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007), and others, which may better fit the peculiarities to investigate compensation in family firms.

Thus, this Special Issue is an opportunity for future studies to fill these gaps and help advance our understanding of compensation and incentive policies in family firms. In this regard, we welcome theoretical and empirical studies that focus on, but are not limited to, the following questions and topics:

• How do family-business overlap characteristics help to explain the adoption of certain compensation policies in family firms? How do these policies impact on family employees’ and non-family employees’ attitudes and behaviors? Are these attitudes and behaviors functional or dysfunctional for family firms?
• How might the importance given to preserving family-centered noneconomic goals influence the design of compensation systems in family firms and, consequently, on employees’ perception of justice? Are there other characteristics from family, business, or business–family overlap that condition this influence?
• How does compensation dispersion affect employees’ attitudes and behaviors? What is considered “equity pay” among family and non-family employees in managerial and non-managerial levels?
• What are the compensation and incentive policies consequences of the achievement of economic and non-economic goals in family firms? Are these policies beneficial or harmful?
• How do formal and informal governance mechanisms and structures affect the effectiveness of employee compensation design in family firms?
• How do institutional, social, and cultural contingencies influence the design of compensation and incentives in family firms? Is the relationship among family control and formal compensation policies contingent upon different contexts?
• How do the interests, needs, and dynamics of the owing family interact with specific firm strategies in influencing compensation policies?
• What is the potential for non-family executives to influence the adoption of compensation and incentive policies in family firms for both family and non-family employees?
• How do family science theories help to explain how families affect compensation and incentive policies in family business?

After an initial selection of submitted work based on fit with the Special Issue, a selected set of papers will go through a peer-reviewing process. There is no publishing fee, as with all papers in the Special Issue.

For questions regarding this Special Issue, please contact any of the Guest Editors.

References

Astrachan, J. H., & Kolenko, T. A. (1994). A neglected factor explaining family business success: human resource practices. Family Business Review, 7(3), 251–262.

Berrone, P., Makri, M., & Gómez-Mejía, L. R. (2008). Executive compensation in North American high-technology firms: A contextual approach. The International Journal of Human Resource Management, 19(8), 1534–1552.

Carlson, D. S., Upton, N., & Seaman, S. (2006). The Impact of Human Resource Practices and Compensation Design on Performance: An Analysis of Family-Owned SMEs. Journal of Small Business Management, 44(4), 531–543.

Carrasco-Hernández, A., & Sánchez-Marín, G. (2007). The determinants of employee compensation in family firms: Empirical evidence. Family Business Review, 20(3), 215–228.

Chen, C.-J., Hsu, C.-Y., & Chen, Y.-L. (2014). The impact of family control on the top management compensation mix and incentive orientation. International Review of Economics and Finance, 32, 29–46.

Cheng, S., & Firth, M. (2006). Family ownership, corporate governance, and top executive compensation. Managerial and Decision Economics, 27(7), 549–561.

Chrisman, J. J., Devaraj, S., & Patel, P. C. (2017). The Impact of Incentive Compensation on Labor Productivity in Family and Nonfamily Firms. Family Business Review, 30(2), 119–136.

Chua, J. H., Chrisman, J. J., & Sharma, P. (1999). Defining the family business by behavior. Entrepreneurship Theory and Practice, 23, 19–40.

Cohen, S., & Lauterbach, B. (2008). Differences in pay between owner and non-owner CEOs: Evidence from Israel. Journal of Multinational Financial Management, 18(1), 4–15.

Croci, E., Gonenc, H., & Ozkan, N. (2012). CEO compensation, family control, and institutional investors in Continental Europe. Journal of Banking and Finance, 36(12), 3318–3335.

De Kok, J. M. P., Uhlaner, L. M., & Thurik, A. R. (2006). Professional HRM practices in family owned-managed enterprises. Journal of Small Business Management, 44(3), 441–460.

Gómez-Mejía, L. R., Haynes, K. T., Núñez-Nickel, M., Jacobson, K. J., & Moyano-Fuentes, J. (2007). Socioemotional wealth and business risks in family-controlled firms: evidence from Spanish olive oil mills. Administrative Science Quarterly, 52(1), 106–137.

Gómez-Mejía, L. R., Larraza-kintana, M., & Makri, M. (2003). The Determinants of Executive Compensation in Family-Controlled Public Corporations. The Academy of Management Journal, 46(2), 226–237.

Gupta, N., & Shaw, J. D. (2014). Employee compensation: The neglected area of HRM research. Human Resource Management Review, 24(1), 1–4.

Habbershon, T. G., Williams, M., & MacMillan, I. C. (2003). A unified systems perspective of family firm performance. Journal of Business Venturing, 18(4), 451–465.

Jaskiewicz, P., Block, J. H., Combs, J. G., & Miller, D. (2017). The effects of founder and family ownership on hired CEOs’ incentives and firm performance. Entrepreneurship: Theory and Practice Theory, 41(1), 73–103.

Lansberg, I. S. (1983). Managing human resources in family firms: the problem of institutional overlap. Organizational Dynamics, 12(1), 39–46.

McConaughy, D. L. (2000). Family CEOs vs. Nonfamily CEOs in the Family-Controlled Firm: An Examination of the Level and Sensitivity of Pay to Performance. Family Business Review, 13(2), 121–131.

Schulze, W. S., Lubatkin, M. H., & Dino, R. N. (2003). Toward a theory of agency and altruism in family firms. Journal of Business Venturing, 18(4), 473–490.

Schulze, W. S., Lubatkin, M. H., Dino, R. N., & Buchholtz, A. K. (2001). Agency relationships in family firms: theory and evidence. Organization Science, 12(2), 99–116.

Sharma, P., Melin, L., & Nordqvist, M. (2014). Introduction: scope, evolution and future of family business studies. In L. Melin, M. Nordqvist, & P. Sharma (Eds.), The SAGE handbook of family business (pp. 1–22). London: SAGE.

Veliyath, R., & Ramaswamy, K. (2000). Social Embeddedness, Overt and Covert Power, and Their Effects on CEO Pay: An Empirical Examination Among Family Businesses in India. Family Business Review, 13(4), 293–311.

Verbeke, A., & Kano, L. (2012). The transaction cost economics theory of the family firm: family-based human asset specificity and the bifurcation bias. Entrepreneurship: Theory and Practice, 36(6), 1183–1205.

Young Baek, H., & Fazio, P. L. (2015). The effect of family ownership and control on equity-based compensation: Evidence from S&P SmallCap firms. Journal of Family Business Management, 5(1), 55–72.

Prof. Dr. Gregorio Sánchez-Marín
Prof. Dr. Juan David Peláez-León
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All papers will be peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Administrative Sciences is an international peer-reviewed open access quarterly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.