Family firm heterogeneity and CEO compensation in Continental Europe

CEO compensation in family firms is affected by certain corporate governance characteristics, such as the generational stage of the firm (founder or descendant-controlled firms), the level of family involvement on the board of directors (lone or multiple family members sitting on the board) and the family status of the CEO (family or professional CEO). In this paper, we argue that moderating effects arise among these dimensions of heterogeneity. The results show that in firms owned by descendants, the presence of multiple family members is beneficial in lowering family CEO compensation, while the opposite is true in the presence of the founder. Moreover, within founder and descendant firms, the number of family representatives on the board exerts a strong influence on the compensation of family CEOs, whereas it does not affect the compensation of professional CEOs. The results also show that in certain family clusters, CEO compensation is higher than in nonfamily firms, thereby emphasizing that when comparing CEO compensation in family and nonfamily firms, it is important to consider the intersections among the heterogeneity dimensions of the governance of family firms. The findings of the paper contribute to the literature on the governance of family firms by showing that certain family firm types are more effective than others in keeping CEO compensation under control.