The propensity to use incentive compensation for non-family managers in SME family firms

Purpose - The purpose of this paper is to use the socio-emotional wealth perspective to examine how the level of family involvement reduces the propensity to use incentives to non-family managers in small to medium-sized enterprises (SME) family firms.Design methodology approach - Primary data were...

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Bibliographic Details
Published in:Journal of family business management 2013-01, Vol.3 (1), p.62-80
Main Authors: Memili, Esra, Misra, Kaustav, Chang, Erick P.C., Chrisman, James J.
Format: Article
Language:English
Subjects:
Compensation
Decision making
Economic theory
Executive compensation
Family owned businesses
Incentives
Small & medium sized enterprises-SME
Stock options
Studies
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Summary:Purpose - The purpose of this paper is to use the socio-emotional wealth perspective to examine how the level of family involvement reduces the propensity to use incentives to non-family managers in small to medium-sized enterprises (SME) family firms.Design methodology approach - Primary data were collected from US firms. To evaluate the hypotheses, a logit model was employed on a final sample of 2,019 small family firms.Findings - Results suggest that family influence and control and intra-family transgenerational succession intentions are negatively related to the propensity to use incentives. Also, the interaction effects of family management and ownership reduce the propensity to use incentives.Originality value - The paper's empirical findings imply that despite their potential economic benefits, family involvement reduces the probability that incentives will be offered to non-family managers because such incentives are perceived to be inconsistent with the preservation of the family's socioemotional wealth. Also, choices that reflect a preference for socioemotional wealth may not only be a function of decision framing and loss aversion but also by the size of the economic pay-offs that might be available. The findings suggest that non-family managers in SME family firms may be affected by a family's preoccupation with its socioemotional endowments. Thus, the authors expect that this paper provides further avenues to explore the decisions about attaining non-economic and economic goals and other strategic issues in family firms.
ISSN:2043-6238
2043-6246
DOI:10.1108/20436231311326490