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CEO Compensation in Founder-Controlled Firms: A Comparison Between Family CEOs and Non-Family CEOs

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Listed:
  • Yves Bozec
  • Jackie Di Vito

Abstract

When the founder is no longer the CEO of the firm he controls, he can entrust the position either to a family member or to a professional non-family CEO. Our study examines how founder-controlled firms compensate family CEOs versus non-family CEOs. Using regression analyses on a sample of large Canadian firms listed on the Toronto Stock Exchange (S&P/TSX) over a 7-year period (2002 to 2008), we find that the total compensation of family CEOs is lower than that of non-family CEOs, especially when the founder does not have excess voting rights. On the other hand, there is no difference in the incentive component of the compensation of family and non-family CEOs. Overall, our results tend to support the “optimal contracting” approach as opposed to the “rent extraction” approach in explaining founders’ behaviour in regard to CEO compensation when no excess-voting rights are involved.

Suggested Citation

  • Yves Bozec & Jackie Di Vito, 2023. "CEO Compensation in Founder-Controlled Firms: A Comparison Between Family CEOs and Non-Family CEOs," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 15(6), pages 1-44, June.
    • Handle: RePEc:ibn:ijefaa:v:15:y:2023:i:6:p:44
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    References listed on IDEAS

    as
    1. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    2. Hongbin Cai & Hongbin Li & Albert Park & Li-An Zhou, 2013. "Family Ties and Organizational Design: Evidence from Chinese Private Firms," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 850-867, July.
    3. Amoako-Adu, Ben & Baulkaran, Vishaal & Smith, Brian F., 2011. "Executive compensation in firms with concentrated control: The impact of dual class structure and family management," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1580-1594.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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