Stewards, Agents, and the Founder Discount: Executive Compensation in New Ventures

Noam Wasserman

405 citations0/0 files storedAcademy of Management Journal

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Corporate Finance and Governance Entrepreneurship Studies and Influences Family Business Performance and Succession

Abstract

Agency theory suggests that the interests of opportunistic, self-interested agents conflict with those of principals. Stewardship theory suggests instead that executives' interests are aligned with company interests and that executives are thus more intrinsically motivated than agency theory implies. This study develops hypotheses regarding the psychological and situational factors that affect the applicability of each theory to executive compensation. I tested hypotheses using a unique data set of 1,238 executives from 528 private companies. Results suggest significant differences between founder-stewards and nonfounder agents that diminish with company growth, and significant effects of equity ownership and outside rounds of financing.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1984Structural Inertia and Organizational Change 1992Alumni and their alma mater: A partial test of the reformulated model of organizational identification 1997TOWARD A STEWARDSHIP THEORY OF MANAGEMENT 1990Performance Pay and Top-Management Incentives 1980Markets, Bureaucracies, and Clans 1981Rank-Order Tournaments as Optimum Labor Contracts

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