Managerial Family Ties and Employee Risk Bearing in Family Firms: Evidence from Spanish Car Dealers

• DOI: http://doi.org/10.1002/hrm.21829
• Author: Martin Larraza‐Kintana,Jose Moyano‐Fuentes,Luis R. Gomez‐Mejia,Shainaz Firfiray
• Date: 01 September 2018
• Published date: 01 September 2018

SPECIAL ISSUE ARTICLE

Managerial Family Ties and Employee Risk Bearing in Family

Firms: Evidence from Spanish Car Dealers

Luis R. Gomez-Mejia

1

| Martin Larraza-Kintana

2

| Jose Moyano-Fuentes

3

| Shainaz Firfiray

4

1

Deptartment of Management, Arizona State

University, Tempe, AZ

2

Dept. de Gestión de Empresas and Institute

for Advanced Research in Business and

Economics (INARBE), Universidad Pública De

Navarra, Pamplona (Navarra), Spain

3

Dept. de Organización de Empresas,

Marketing y Sociologia, Universidad de Jaén,

Linares (Jaén), Spain

4

Dept. of Organisation & HRM, Warwick

Business School, University of Warwick,

Coventry, UK

Correspondence

Martin Larraza-Kintana, Dept. de Gestión de

Empresas, Universidad Pública De Navarra,

Campus de Arrosadia 31006, Pamplona

(Navarra) –Spain.

Email: martin.larraza@unavarra.es

This article argues that family firms in which the top management team (TMT) is dominated by

nonfamily managers are more likely to shift risk to employees through incentive pay schemes

than family firms with TMTs dominated by family members. We also argue that this tendency

is aggravated in firms of bigger size, as this condition makes nonfamily managers more vulnera-

ble. We further note that differences between family- and non-family-dominated TMTs may

lessen when the sales trend is negative. The analyses conducted on a sample of 219 family-

controlled car dealerships in Spain confirm our expectations.

KEYWORDS

family firms, incentive pay, nonfamily managers, risk bearing, socioemotional wealth

1|INTRODUCTION

A large proportion of firms around the world are controlled by families,

particularly among small and medium-sized non–publicly traded firms

(Laporta, López-de-Silanes, & Shleifer, 1999). For instance, some

accounts estimate that approximately 95 percent of all non–publicly

traded firms in the construction and service sectors are family owned

(Amit & Villalonga, 2014). Surprisingly, the scholarly literature has not

paid much attention to the human resource management practices of

these firms, particularly in the domain of pay incentives, which a parallel

literature suggests is a key practice affecting employee risk bearing and

risk taking (Devers, McNamara, Wiseman, & Arrfelt, 2008; Gomez-Mejia,

Welbourne, & Wiseman, 2000; Villena, Gomez-Mejia, & Revilla, 2009;

Wiseman & Gomez-Mejia, 1998). The level of analysis has generally been

at the firm level, usually comparing family and nonfamily firms, treating

internal processes that may impinge on risk bearing and risk taking as a

black box. This article sheds light on these issues by examining how man-

agerial family ties influence risk bearing by managers and the cascading

effect that this has on internal human resource decisions that transfer risk

in the form of variable pay to lower levels in the organization.

Past researchhas documented that compared to their familypeers,

nonfamily managers bear more employment and compensation

risk (Cruz, Gomez-Mejia, & Becerra, 2010; De Kok, Uhlaner, & Thurik,

2006; Gomez-Mejia, Larraza-Kintana, & Makri, 2003; Gomez-Mejia,

Nuñez-Nickel, & Gutierrez, 2001; McConaughy, 2000; Reid & Adams,

2001). In spiteof this recognition of the greater personal risk that non-

family managers bear, no research conducted to date has analyzed the

extent to whichthis translates into a set of human resource policies for

subordinates that mirror the risks faced by nonfamily managers. Here,

we argue that human resource decisions taken by nonfamily managers

in family firms are strongly driven by the greater personal riskthey bear

relative to their counterparts with family ties to owners. More specifi-

cally, we propose that in familyfirms, nonfamily controlof the top man-

agement team (TMT) impacts employee risk bearing through the

implementation of incentive pay schemes for the entire organization.

Using insights from behavioral agency theory(Wiseman & Gomez-Mejia,

1998) and thesocioemotional wealthpreservation model (Gomez-Mejia,

Cruz, Berrone,& De Castro, 2011;Gomez-Mejia, Haynes,Nuñez-Nickel,

Jacobson,& Moyano-Fuentes, 2007),we contend that in doingso, non-

family managers, who are not affectedby socioemotional wealth (SEW)

protectionconcerns, try to shareand shift some of their personal risk to

subordinates. We also argue that risk bearing of nonfamily managers is

accentuatedas the firm grows in size. Thisis because direct supervision

of employeesbecomes more difficult as a firm grows,increasing the per-

ception of a loss of control over employees (Balkin & Gomez-Mejia,

1987, 1990;Gomez-Mejia, 1992).Consequently, an increase in firm size

reinforcesnonfamily managers’desire to share with anddeflect some of

this risk tosubordinates throughthe compensation system.Additionally,

DOI: 10.1002/hrm.21829

Hum Resour Manage. 2018;57:993–1007. wileyonlinelibrary.com/journal/hrm © 2017 Wiley Periodicals, Inc. 993