Emerging evidence suggests that pay dispersion among non-CEO top management team (TMT) members harms firm performance, which raises questions about why firms’ owners tolerate or even support it. Prior research shows that the key distinction between founder and family owners is that in addition to firm performance and growth goals, family owners pursue socioemotional goals. On the basis of this distinction, we develop and test theory linking founders’ and families’ ownership to TMT pay dispersion. Consistent with our theory, a Bayesian panel analysis of Standard & Poor’s 500 firms shows that founder owners use less TMT pay dispersion and that family owners, relative to founder owners, use more, although that declines across generations. We also provide evidence that TMT pay dispersion harms firm performance. Our theory and results are significant because they help to explain why some owners favor compensation practices that cause TMT pay dispersion, despite evidence that this harms firm performance.

Additional Metadata
Keywords agency theory, family firms, founder firms, pay dispersion, signaling theory, top management teams
Persistent URL dx.doi.org/10.1177/0149206314558487, hdl.handle.net/1765/99102
Series ERIM Top-Core Articles
Journal Journal of Management
Jaskiewicz, P, Block, J.H, Miller, D, & Combs, J.G. (2017). Founder Versus Family Owners’ Impact on Pay Dispersion Among Non-CEO Top Managers. Journal of Management, 43(5), 1524–1552. doi:10.1177/0149206314558487