The propensity to use incentive compensation for non‐family managers in SME family firms

Abstract

Purpose– The purpose of this paper is to use the socio-emotional wealth perspective to examine how the level of family involvement reduces the propensity to use incentives to non-family managers in small to medium-sized enterprises (SME) family firms. Design/methodology/approach – Primary data were collected from US firms. To evaluate the hypotheses, a logit model was employed on a final sample of 2,019 small family firms.Findings– Results suggest that family influence and control and intra-family transgenerational succession intentions are negatively related to the propensity to use incentives. Also, the interaction effects of family management and ownership reduce the propensity to use incentives.Originality/value– The paper’s empirical findings imply that despite their potential economic benefits, family involvement reduces the probability that incentives will be offered to non-family managers because such incentives are perceived to be inconsistent with the preservation of the family’s socioemotional wealth. Also, choices that reflect a preference for socioemotional wealth may not only be a function of decision framing and loss aversion but also by the size of the economic pay-offs that might be available. The findings suggest that non-family managers in SME family firms may be affected by a family’s preoccupation with its socioemotional endowments. Thus, the authors expect that this paper provides further avenues to explore the decisions about attaining non-economic and economic goals and other strategic issues in family firms.

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