A Study on Executive-Employee Pay Ratios of Family Firms:The Effect of Family Control-Ownership Deviations

Abstract

This study examines whether family firms have more incentives on pay equality than non-family firms Furthermore I exploit the control-ownership deviation to find its impacts on family firms’ better treatment of their employees Prior literature has argued that family firms with a bequest motives tend to conduct long-horizons decisions while the firms with a control-ownership deviation tend to value extraction Other prior studies show that family firms’ desire to continue and pass on their business would limit their entrenchment incentives In terms of pay equity family firms reach a consensus with their financial incentives and personal benefits Based on Taiwan’s publicly traded companies in 2018 I conclude that family firms could mitigate the compensation disparity of executives and employee Furthermore there is negative effect of excess control on pay ratios and the effects are more evident under higher levels of control-ownership separation in family firms These findings help explain why family firms exhibit equality in executives-employee compensation dispersion Because control-ownership wedges of an entrenched family firm are negatively related to employee compensation dispersion I interpret the lower workers’ pay ratios as evidence of agency problems from the separation of ownership and control in family business If it were favorable for family owners with more control to either pay higher wages or reduce excessive executives’ pay they would reduce even more pay disparities when they have more bequest incentives to do so through longer investment horizons in their firms

Date of Award	2020
Original language	English
Supervisor	Chaur-Shiuh Young (Supervisor)