Involvement Degree Of Family Firm And Compensation Decision

The 20th CPC National Congress was held in October 2022,again emphasizing the concept of "common prosperity".The key to achieving common prosperity is that private enterprises develop reasonable salary distribution policies to promote effective primary distribution.Family firms are the backbone of private enterprises and an important entity in promoting the development of socialist economy with Chinese characteristics.On the one hand,the development and expansion of family firms can promote significant economic development,thus creating more jobs and income for people and achieving the goal of common prosperity.On the other hand,there are three groups within the family firms:family executives,non-family executives,and employees,and there is a trade-off in the distribution of their compensation.Therefore,in family firms,it means that the fairness of compensation between family executives and non-family ones and the reasonableness of differences between executives and employees deserve equal attention.In family firms,family executives compensation is lower than that of non-family executives due to their stable positions,avoidance of accountability,and the existence of implicit contracts.However,in recent years,the gap between non-family executive compensation and family executive compensation in family firms has gradually narrowed.The balance between the risks and rewards of non-family executives in family has gradually been broken.Nowadays,family firms have entered the peak of intergenerational inheritance,with the continuous involvement of family members in the board of directors,including the heir.Research suggests that high family directorship and the initiation of successors to the board may lead to biased corporate decisions in favor of family members interests,while ignoring the interests of other shareholders and employees,exerting undue influence on compensation decisions in the board of directors,thereby making decisions in favor of family members,and even collaborating with management at all levels to encroach on the salaries of employees.However,up to now,there has been no research that provides empirical analysis and reasonable explanations on the impact mechanism on family involvement and family executive and non-family compensation,nor has there been any research on the impact of controlling family rights in the board of directors on the compensation of employees.Therefore,in the current context of China,it is of some theoretical value and practical significance to study the relationship between the degree of family members involvement in the firm and the compensation decisions of the three groups within the firm.To explore the mechanism behind this issue,the article selects family firms listed in Chinas Shanghai and Shenzhen A-shares from 2008 to 2020 as a research sample and examines the relationship between the degree of family business involvement on executive compensation and compensation of employees.The results found that the higher the proportion of family directors,the higher the family executive compensation,and the lower the compensation of non-family executives and employees.After the heir enters the board of directors,the compensation for non-family executives will increase,with no significant impact on employee compensation.After considering a series of endogenous issues,the research conclusions are still robust.The heterogeneity tests prove that the lower the analysts attention,the higher the policy uncertainty,and the more significant the decline in employee compensation;The higher the proportion of family ownership,the lower the average salary of family executives,and the higher the salary of non-family executives.If the heir has an overseas background,the remuneration of non-family executives will increase,while the compensation of family executives will decline.Further,this article discusses the economic consequences and finds that reducing the compensation of non-family executives not only leads to the quitting of non-family executives,but also may harm corporate performance.The contributions of this study are as follows:Firstly,it uses empirical analysis to answer the question of how the degree of involvement of family firms affects the compensation of family executives,non-family executives,and employees,enriching the research on the influence of controlling family power on compensation setting in family firms.In terms of executive compensation,previous literature mostly focused on the differences in compensation design between executives family identities,without discussing the different degrees of family involvement between family and non-family executives,or further discussing whether there are significant differences after the heir enters the board of directors.Therefore,this article provides further research evidence for the study of executive compensation in family firms.For employees,previous literature has mainly focused on the discussion of executive compensation,ignoring the impact of employee compensation.This article discusses the impact of the proportion of family directors on employee compensation,enriching the research on the compensation design of family enterprises for employee compensation.Secondly,the article also examines the moderating effects of other factors,such as family firm shareholding,heirs overseas background,analysts attention,and economic policy uncertainty,on the relationship between family involvement and compensation of family executives,non-family executives,and employees,explaining more clearly the main hypothesis influence mechanism.Thirdly,the research results of this article can be applied to the research on the formulation of compensation contracts in Chinese family firms,providing reference for family firms to formulate reasonable and effective compensation,realizing the prosperity of family firms,promoting the development of the real economy,and helping to achieve common prosperity.Fourth,the empirical results of this article provide a possible direction for market supervision of controlling families,that is,a high proportion of family directors may lead to the behavior of family controlling shareholders who encroach on the interests of non-family executives and small and mediumsized shareholders.By strengthening the monitoring of companies with a high proportion of family directors,such situations can be prevented,thereby improving the market environment.