臺大管理論叢 NTU Management Review VOL.30 NO.1

CEO Pay Cuts, Corporate Governance and Family Business 90 CEO Pay Cuts, Corporate Governance and Family Business 1. Purpose/Objective The design of remuneration packages for high-level managers requires both “the carrot” and “the stick.” Beatty and Zajac (1987) find that replacing a chief executive officer (CEO) can negatively affect a company’s stock price. Therefore, instead of replacing poorly performing CEOs, reducing their compensation may be a more effective approach. Core, Holthausen, and Larcker (1999) state that weak corporate governance results in agency problems, and CEOs may obtain higher compensation than they deserve. Gao, Harford, and Li (2012) learn that CEOs with pay cuts work diligently to improve thier performance in order to restore their salaries to previous levels. Family businesses and the degree to which family members involve themselves in business operations are also the focus of several studies (Sciascia, Mazzola, Astrachan, and Pieper, 2012; Sharma, Chrisman, and Gersick, 2012). Chang, Wu, and Wong (2010) reveal that information asymmetry between controlling shareholders and small shareholders is more prominent in family businesses. Maury (2006) notes that in comparison to general businesses, family businesses have superior operational performance. In addition, when the CEO of a family business actively participates in the management of operations, the earning power of the company increases. Maury’s study reveals that the operating mindset of CEOs in family businesses aligns with stewardship theory. In comparison to Western family businesses, ethnic Chinese family businesses have stronger tendencies to keep control within their own family (Fukuyama, 1995). Enterprises in Taiwan are mainly family-owned (Wang and Wen, 2011) and family members greatly impact the direction of the enterprise through their involvement in investment and operations decisions. Lin, Pan, and Wang (2015) find that family businesses are less likely to overinvest during periods of positive free cash flow compared with non-family businesses. Past studies on the correlation between performance and compensation focus on using the total or average salary of high-level managers to evaluate compensation standards. This study, in contrast, uses the CEOs’ individual total salary as the criterion. Therefore, this study first examines the causes and effects of salary reduction among Li-Jin Huang , Department of Accounting and Taxation, Shih Chien University Kaohsiung Campus Ying-Fen Lin , Department of Accounting, National Dong Hwa University