Building from a socioemotional wealth perspective, our paper focusses on testing
how the level of family involvement reduces the propensity to use incentives
to non-family managers in SME family firms. We focus on SME family firms
because they tend to experience substantial trade-offs in their preferences for
economic and non-economic goals and this influences their decisions on whether to
use incentive compensation. In addition, the family’s ownership and control are key
elements of their socioemotional wealth and also allow the family the power to
pursue its agenda throughout the firm (Zellweger et al., 2012). Although
socioemotional wealth concerns tend to dominate decision making, family firms
can be expected to attempt to maximize their utility from achieving both economic
and non-economic goals (Chrisman et al., 2003c, 2014), whereas non-family firms
will primarily focus on achieving only economic goals. As a consequence, it is
expected that the SME family firm will compensate non-family managers less for
two reasons. First, those managers are unlikely to be entirely willing or able to
contribute to the achievement of non-economic goals and preservation of
socioemotional wealth. Second, offering higher levels of compensation to nonfamily
managers negatively affects the overall utility of family owners since such
compensation reduces their ability, dollar for dollar, to provide altruistic-inducted
benefits to family managers.
Building from a socioemotional wealth perspective, our paper focusses on testinghow the level of family involvement reduces the propensity to use incentivesto non-family managers in SME family firms. We focus on SME family firmsbecause they tend to experience substantial trade-offs in their preferences foreconomic and non-economic goals and this influences their decisions on whether touse incentive compensation. In addition, the family’s ownership and control are keyelements of their socioemotional wealth and also allow the family the power topursue its agenda throughout the firm (Zellweger et al., 2012). Althoughsocioemotional wealth concerns tend to dominate decision making, family firmscan be expected to attempt to maximize their utility from achieving both economicand non-economic goals (Chrisman et al., 2003c, 2014), whereas non-family firmswill primarily focus on achieving only economic goals. As a consequence, it isexpected that the SME family firm will compensate non-family managers less fortwo reasons. First, those managers are unlikely to be entirely willing or able tocontribute to the achievement of non-economic goals and preservation ofsocioemotional wealth. Second, offering higher levels of compensation to nonfamilymanagers negatively affects the overall utility of family owners since suchcompensation reduces their ability, dollar for dollar, to provide altruistic-inductedbenefits to family managers.
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