Setting the Right Mix – Analyzing Outside Directors' Pay Mix in Public Family Firms

Outside directors' pay mix determines if and to what extent a firm's designated monitor is incentivized by means of performance related pay. Owning families of public firms, still having substantial influence on the compensation process, need to balance the family's genuine interest against PR pay and stakeholders' contrasting preferences in setting the right mix. At first, family and non-family firms show no difference regarding the adoption of PR pay. However, among PR pay adopters, we find family firms devote greater shares to this pay component, thus sacrificing part of their socioemotional wealth in order to meet stakeholders' demand. A differentiation between different types of family firms reveals that especially true family firms account for this particular behavior.