Although large owners monitor managers effectively, they differ in important ways. Whereas founder owners focus on firm performance, family owners also pursue socioemotional goals. We leverage this distinction to theorize that family owners offer hired CEOs more incentive pay—to attract nonfamily CEOs, signal good governance, and achieve better firm performance. Without socioemotional wealth distractions, founder owners do not need high incentives and overusing them is counterproductive. Bayesian regressions using a panel of 335 S&P 500 firms support our theory. A key implication is that founder and family owners approach governance differently and these differences affect firm performance.
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