Research On The Influence Of Family Kinship And Executive Compensation

The principal-agent problem exists in the enterprise from the separation of the ownership and management rights of the enterprise.Under the assumption that the agent is a self-interested economic person,when the principal and the agent have conflicts of interest and the information is asymmetrical,the agent will use his own infonnation superiority to encroach on the rights of the principal and seek self-interest for himself.As one of the ways to solve the principal-agent problem,the compensation contract often links the agent's salary with the company's performance closely to achieve incentives,which helps to reduce the agency costs.However,the assumption that the agent is a self-interest is too one-sided in the agency theory.Some executives are more like a housekeeper in the process of business management in order to pursue their work achievements and own satisfaction.They weaken the agency conflict through internal incentives.At this time,the external incentive effect based on salary is weakened,and the sensitivity between salary and performance is reduced.And this phenomenon is more obvious in family businesses.Family businesses have always been an important form of corporate organization in the world.Since China's reform and opening up,it has entered a period of economic transition and social transformation.private enterprises have developed rapidly.As a major force of them,the family-owned enterprises have also shown great vitality and contributed to the rapid economic development and employment promotion.The academic community has been enthusiastic about the topic of family management,mixed management and professional management on the different impacts of business performance,investment and financing decisions or corporate value.This paper mainly explores the impact of the kinship relationship within the family business on the compensation contract from the perspective of compensation.The participation of family members as one of the main characteristics of the family business makes some differences between family business and other companies on the problem of the principal-agent problem.When family members act as agents,the nature kinship relationship with the business owner reduces the conflict of interest.Family member executives will work hard to maintain the family's wealth and reputation,thereby the agency costs is reduced and the role of compensation incentives is weaken.In addition to the commonality between family member executives and non-family members,the heterogeneity of family relationships is also the main object of our investigation.There are various kinds of kinship within the family.According to the diversity-orderly proposed by Mr.Fei,we can speculate that the executives with different kinships from the actual controllers will also reduce the salary level and salary performance sensitivity differently.Taking the A-share listed family business from 2014 to 2016 as the research object,in order to eliminate the special emotions that the actual controller has when he is the CEO,this situation will be tested separately,and then examine the impact of family members as CEOs and family members who are related to the actual controllers differently as CEOs on compensation incentives.The kinship index measured by He Xiaogang et al.was introduced to describe the kinship relationship when studying the relative distance.This paper starts from the perspective of the diversity-orderly structure which is wide-ranging in China's society,and analyzes the impact of different family-linked relationships on executive compensation and the sensitivity between salary and performance.The conclusions of the study are as follows:When the actual controller is the CEO,the cash compensation levels and sensitivity between cash compensation and performance are significantly reduced.Except for the situation that the actual controllers are CEOs,we refer to the family members and non-family members as CEOs,the cash compensation level of the CEOs of the family members is significantly reduced,but the sensitivity between salary and performance of the two is not different significantly.When considering the family members who are related to the actual controller differently,the kinship index has a significant positive correlation with the cash compensation level,but has no significant effect on the sensitivity between compensation and performance.Based on the above conclusions,this study provides corresponding management suggestions for the establishment of compensation contracts for family businesses,which is beneficial to family enterprises to recognize and value the importance of kinship in enterprises.At the same time,it can be used as a reference for the development management of non-family enterprises.