Family Pay Premium in Large Business Group Firms

Abstract

In this study, we empirically test the predictions that the family pay discount documented in the literature for U.S. firms does not hold in a business group setting and that this is attributable to the lack of monitoring by other family members. We find evidence consistent with these predictions using Korean data. First, family executives receive higher compensation than non-family executives (i.e., the family pay premium) in business group firms (chaebols). Second, we find that the pay offered to family executives tends to be high when the proportion of shares held by other family members is low, which is typically the case in business group firms.