This paper analyzes the interaction between product market competition and family ties on the structure of CEO pay, in a panel of publicly listed family firms. To account for the multi-dimensional nature of competition we use a variety of measures. We find that in industries where import penetration is high, products are differentiated or domestic concentration is high, family CEOs’ variable pay is lower than is professional CEOs’ variable pay; but the former is more closely related to firm performance. This result remains strong when we account for the equity component of compensation and for endogeneity concerns and when we test the hypothesis of family CEOs’ “pay for luck”. Our findings suggest that: (1) competition is likely to substitute incentive pay in homogeneous product markets and to complement them in differentiated industries and in markets that are open to international trade; and (2) product market characteristics are more important than are family ties in shaping managerial compensation.
