Independent Directors And Executives Pay-Performance Sensitivity In Listed Family Business

Family businesses occupy an important position in the market economy.Most private businesses are family businesses,which play a huge role in national economic development,employment and wealth creation.With China's reform and opening up,The government has introduced a series of policies and reform measures that are conducive to the development of private businesses.The number of family business is increasing and has gradually become one of the main operating modes of private businesses in China.Two rights separation is a modern business widespread phenomenon,and agency problem is the core of corporate governance,the family business mainly exists in“two sides-three layers”,the first agency problems between owners and managers of family business,family firms tend to employ two types of managers,executives of the family and professional manager,so the first agency problem can be divided into two layers of agency problem,family business owners and family executives,and family business owners and professional managers;The second is that the existence of controlling shareholders in family businesses will lead to the second agency problem between family controlling shareholders and medium and small shareholders.There are two important ways to alleviate the agency problem,incentive and supervision.From the perspective of incentive,executive compensation incentive is one of the most direct and effective methods to alleviate agency contradiction.Both academic and practical circles have been emphasizing that the compensation of agents should be linked to the business' s performance to motivate agents and protect the interests of principals,thus reducing agency costs.In addition,from the perspective of supervision,the independent directors do not hold office in the business,and have no trading relationship or kinship relationship with the business,they can give independent opinions on major decisions such as manager selection and hiring,salary setting and performance evaluation.However,in family businesses,there are often controlling shareholders,family involvement,relatives holding office and other phenomena,in order to better safeguard the interests of the shareholders,Whether theindependent directors can play a role of governance is particularly important.Theoretically,on the one hand,the appointment of independent directors by family businesses can guide and supervise the management to make objective and accurate decisions,effectively prevent the self-interested behavior of the management,ensure the management to act in the interests of shareholders,and alleviate the first agency cost.On the other hand,it can supervise the behavior of controlling shareholders,protect the interests of minority shareholders and reduce the second agency cost.So is it the quantity or quality of independent directors that plays a positive role in corporate governance? However,previous studies have shown that independent directors and senior executives conspire to set their own salaries frequently.Therefore,based on the data of family businesses,this paper studies the influence of independent directors in family businesses on executive compensation and the sensitivity of compensation performance by combining principal-agent theory,resource dependence theory and altruism theory.In addition,for family businesses,family involvement creates a unique non-economic social emotional wealth(SEW)objective,so we will further examine whether the two are affected by different family involvement and family classification.Based on the above background,this paper takes family businesses as the research object.Firstly,it searches and sorts out domestic and foreign research literature related to the definition of family businesses,executive compensation and compensation performance sensitivity,and independent directors.Based on principal-agent theory,resource dependence theory,altruism theory and other basic theories,this paper analyzes the influence mechanism of the proportion of independent directors,overseas background and financial background on executive compensation and compensation performance sensitivity in family businesses,as well as the differences under different family involvement and family classification.Then the research hypothesis of this paper is proposed.Secondly,descriptive analysis,Pearson correlation analysis,multiple regression analysis and robustness test were conducted for the research model based on the data of China's listed family businesses from 2014 to 2017.Through the empirical analysis,and finally draw the following conclusions:(1)The proportion of independent directors and the financial background of independent directors infamily companies are conducive to improving the sensitivity of executive compensation performance.In addition,among CEOs of professional managers and person-conrolled family businesses,the proportion of independent directors and financial background are significantly positively correlated with the sensitivity of executive compensation performance,it shows that professional managers as CEO and person-conrolled family businesses strengthen the supervision ability of independent directors(2)the overseas background of independent directors in family businesses reduces the sensitivity of executive compensation performance,and this negative influence is more significant in family members as CEOs and person-conrolled family businesses.The overseas background of independent directors does not play an effective role in supervision and governance.It is of great significance to study the influence of independent directors on executive compensation contracts in the context of family involvement and family classification.On the basis of theoretical and empirical analysis,this study provides corresponding management suggestions for family businesses to make executive compensation contracts and appointment of independent directors.Through this research,on the one hand,the author hopes to further enrich the study of the theory of the executive compensation contract,on the other hand,it is hoped that the research conclusion can provide a reference for decision-making of corporate governance of family businesses.