Research On The Influence Of Top Management Team Heterogeneity On Executive Compensation In Family Firms

Under China’s transitional economy,the private economy continues to promote the development of China’s economy.As a main force in the private economy,the family firms has always played a very important role and played a positive role in creating employment opportunities,contributing GDP and social impact.According to a global family films survey report of 2018,75%of family firms in mainland China have shown higher sales growth in the past 12 months compared to the global average of 69%,and nearly all family businesses have a strategic plan for the next three to five years.The family firms is very family-oriented due to the embedding of the family.The family infiltrates into the company’s operations from all aspects,which makes the two types of principal-agent problems more complicated:one is the principal-agent between the shareholders and the managers.The problem is that with the increasing intergenerational inheritance of family firms and the improvement of the professional manager market,family firms managers have both family members and external professional managers,which will inevitably have different effects on agency issues;the second is the issue of principal-agent between the controlling shareholders and small shareholders,especially in family firms with relatively concentrated equity,the conflict of interest between controlling shareholders and small shareholders is more significant.For a long time,the theoretical and practical circles have agreed that a reasonable executive compensation contract is an important means to solve the problem of principal-agent and improve the value of the company.Executives are the managers of the family firms responsible for day-to-day management,controlling the operation of the entire company and having the most important strategic decision-making power.As an important participatory force in family firms governance,the top management team generates team cognition differences due to differences in background characteristics and the family business environment.This cognition is embedded in corporate governance,which is bound to be important for executive compensation contracts.Therefore,this study has certain theoretical and practical significance.This paper takes family business as the research object.Firstly,it reviews the domestic and foreign research on executive compensation and senior management team literature,and based on the principal theory of principal-agent theory,modern stewardship theory,social embeddedness theory and upper echelon theory,this study analyzes the influence mechanism of the top management team’s age heterogeneity,gender heterogeneity,education heterogeneity and tenure heterogeneity and family situational factors on executive compensation in family firms,and then the research hypothesis.Then,this paper uses the sample data of listed family enterprises in China in 2016 to conduct Pearson correlation analysis,multiple linear regression analysis and robustness analysis,and the research hypothesis is tested empirically.Finally,the following research conclusions are drawn:(1)in terms of the background of top management team,in addition to gender,top management team age heterogeneity,education heterogeneity and tenure heterogeneity have a significant negative impact on the listed family firms executive compensation contract,and has a significant impact on Pay performance sensitivity.It indicates that the differences in team cognition caused by the heterogeneity of background characteristics of family firms executives will have an impact on executive compensation;(2)the participation of family members in management makes the managers and shareholders’ interests highly consistent,effectively alleviating the first type of principal-agent problem,has significantly reduced the executive compensation of family firms,while family control has made the second type of principal-agent problem more serious,significantly improving the executive compensation of family firms,but family control and family management are not sensitive to exscutive pay performance sensitivity;(3)family management has a negative regulation effect on executive compensation mechanism by enhancing negative effects of the age heterogeneity of executive teams,education heterogeneity and tenure heterogeneity;family controlled has a positive regulation effect on executive compensation mechanism by weakening negative effects of these heterogeneity.The research in this paper shows that the difference in team cognition formed by the heterogeneity of top management team has a great influence on the effectiveness of compensation governance in the internal governance structure of the family firms,and degree of influence is different under different family control and management situations.It can be seen that when analyzing the influencing factors of the family firms executive compensation contract,it is very meaningful to study from the background of the top management team,including age,education level and organizational tenure based on the cognitive embedded perspective.The influence of family situational factors such as family control and family management on executive compensation in family firms should be considered.The above research conclusions have certain reference significance for improving the construction of top management team,enhancing the rationality of family firms executive compensation contract,and further improving the effectiveness of internal corporate governance.