A Study On The Sensitivity Of Salary Performance Of Family Business Executives

At the beginning of the year 2015, the executive compensation regulations of state-owned key enterprises has made it clear that the linkage between performance and executive compensation is indispensable, bringing in social interest in the rationality of executive compensation, family business being influenced as well. Compared with the state-owned enterprises, social supervision and restriction in family business is more limited. According to cases of listed family enterprises, the performance of some firms was only slightly higher than the year before but CEO pay rose sharply while the performance of some other corporates significantly increased but CEO pay has not grown. What’s more, big drops in performance of some businesses were accompanied by rises in pay.According to the Chinese Statistics Yearbook 2014, in 2013, the private sector absorbed about 111.77 million urban working forces, which was 61.72% of total urban employment population. The private sector also contributed 66.05% assets of industrial enterprises above designated size. Private economy has been playing an important role in increasing employment rate and improving innovation ability.Influenced by traditional Chinese culture, a large number of private enterprises in our country exhibit distinct family characteristics. Family involves in from all aspects, which makes family business governance not only corporate governance, but also family governance. Based on agent theory and altruism theory, this paper argues that there are two different types of agents in family business, which are family executives and non-family executives. Salary incentive mechanism is different for these two classes of executive roles. A review of existing work implies that topics such as family business definition, the measurement of family involvement, haven’t form unified opinions. The study about the influence of family involvement on executive pay to performance sensitivity is far from adequate.Based on the above background, this paper focuses on the executive pay to performance sensitivity in family business, trying to tell that whether family executives and non-family executives are different in pay to performance sensitivity as well as the adjustment impact of family involvement. Sampling 2011-2013 A-share non-financial listed family companies data, this paper uses factor analysis and linear regression and drew the following conclusions:(ⅰ) As for family executives, the performance sensitivity of both monetary compensation and equity compensation are weaker than non-family executives.(ⅱ) The degree of family involvement reduces family executives’ monetary pay to performance sensitivity.(ⅲ) The degree of family involvement showed no influence on non-family executives’ monetary pay to performance sensitivity, but reduces the equity pay to performance sensitivity of non-family executives’.(ⅳ) In family firms, monetary compensation and equity compensation are alternatives while on-job consumption and compensation are positively related.Finally, this paper draws lessons from the longevous German family company Merck group. Family business in China should further enrich the type of incentive tools and improve flexibility in designing compensation mechanism.