The Determinants of CEO Compensation:Evidence from Family-Owned Listed Corporations in Karachi Stock...

* Lecturer, College of Business Administration, University of Dammam, Kingdom of SaudiArabia, E-mail: [email protected]

** Assistant Professor, Department of Economics, University of Karachi, Karachi, Pakistan,E-mail. [email protected]

The Determinants of CEO Compensation:Evidence from Family-Owned Listed Corporationsin Karachi Stock Exchange

SHAGUFTA KASHIF* & KHALID MUSTAFA**

This study investigates the role of various factors to determine CEOcompensation in family-owned listed companies in Karachi StockExchange. Using the pooled data with 66 companies registered in KarachiStock Exchange from 2010 to 2012, results indicate that the firm size is asignificant contributing factor. In addition if the CEO belongs to thefamily, then his compensation is less because his compensation is madein terms of job security as well as status. Moreover, if the CEO holdsmore than one chair, her/his compensation decreases. This may owe tothe fact that dual power may affect its efficiency and reduce performanceof company adversely. Finally, the number of directors on the board hasincreased the compensation of the CEO has also escalated. Escalatingboard size indicate that more capable and eligible people, well equippedwith skills and resources become part of organization which stronglyeffect performance, market position and goodwill of company andintensifying CEO pay scale.

JEL CLASSIFICATION: L26, L53, M12, M52.

KEYWORDS: Executive compensation, Family ownership, CEO pay.

INTRODUCTION

Executive compensation is considered highly valuable and has gainedsignificant attention over the past few decades. This has come acrossas a result of the multi-billion dollar of bonuses in cash and stockpocketed by the bosses of profit-spitting firms subject to questionableethical practices. According to Gray and Benson (2003) executivecompensations have produced a glut of academic literature in past

Middle East Journal of Economics and FinanceVol. 5, No. 1-2, January-December 2012, Pp. 45-61MEJEF

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decades; especially the wide-spread public perception of executivecompensation is excessively huge and unfair. Therefore, the researchon executive compensation is of growing interest to both academiaand practitioners. The design and composition of the compensation isan essential element of the contract between the owners and topexecutives of the company.

Academic research has traditionally been focussing on empiricalmeasures on executive compensation such as firm performance (Coreet al., 1999) and board composition (Daily et al., 1998) are being at theforefront. According to Murphy (1999), CEO pay packages can bedivided into four parts: a base salary, an annual bonus plan whichvaries with the company’s performance, stock options, and long-termincentives plan. Additionally, they are also entitled to employee benefitsplans such as defined-benefits pension plans, various pre-requisitesand in case of departure, severance payments. This implies that theterm “executive compensation” is a collective term for all the abovecomponents, commonly known as remuneration.

There have been numerous studies on executive compensationworldwide (McKnight, 1996, Conyon and Leech, 1994, Conyon, 1995,Conyon et al., 1995, Cosh and Hugh, 1997, Xu 1997). Most of the studiesthat have been conducted on developed nations such as United States,United Kingdom, Canada, Japan and Italy; there seems to be a dearthof such studies in developing countries specifically from South EastAsia. Economists argue that there are basic institutional and structuraldifferences between developed and developing countries such asbusiness practices, markets, firm structure, implementation of ethicalpractices and most importantly there is no clear difference betweenownership and control. As elaborated by Ghosh (2006), in developingeconomies founder families have greater influence inside the firms andfounders often use their power to intervene in firms matters. There aremany other shortcomings: the managerial markets are not being welldeveloped; weak accounting practices; corporate laws, listingrequirements, bankruptcy laws and corporate governance codes arenot properly enforced. The CEOs are often chosen by the founders orby their relatives and there is a common fear that they might be buildingtheir wealth at the expense of shareholders money.

This study focuses on executive compensation with reference toPakistan and based on family-owned businesses that are listed on theKarachi Stock Exchange. These businesses hold a large in the localPakistan economy. Family firms play an important role in Asiancountries (Taniura, 1993, Numazaki, 1993). Claessens et al., (2000) notes

THE DETERMINANTS OF CEO COMPENSATION: / 47

that more than two-thirds of listed firms in Asian countries arecontrolled by a single shareholder and 60% of those firms are ownedby family members. Furthermore, the control of these firms is largelydependent on a pyramid ownership structure with equity cross-holdings between firms in the group that makes the separation ofownership and control highly unlikely (Piesse and Khatri, 2002).However, in Pakistan the situation is different. According to a recentsurvey only 15% of family owned enterprises have continued to surviveto the third generation and 85% of them have continued to the fourthgeneration. The focus of this paper is on executive compensation infamily based listed corporations and examines the factors thatdetermine executive compensation in an environment where familyties are involved between the principal and the agent. More specifically,we will discuss how pricing mechanisms work in the top executivelabour market for the listed family-owned business sector. While priorresearch have been focused in finding on executive pay, the presentstudy focuses on how family-owned corporations go about decidingand calculating the pay of top executives.

The paper is organized as follows. Section 2 reviews the literature;section 3 describes the econometric methodology and related issuefollowed by data in section 4. The empirical findings and interpretationare presented in section 5. Section 6 provides the concluding remarks.

REVIEW OF LITERATURE

The sharp rise in the level of CEO pay in the past forty years hastriggered an active debate in business and regulatory circles. Someresearchers have associated this to the executive’s ability to establishtheir own pay and therefore charge the firms hefty amounts for theservice they deliver, while others view this as an effective outcome ofthe talent acquisition competition. However, there exist contradictingviews and theories. The “design” of the compensation is a veryimportant element of the indenture between the company and its topmanagers. Most of our literature comes from studies of US firms. Thesestudies show that not only there is a substantial growth in thecompensation of top management in the last twenty years but alsothat the composition has shifted to stock options than cash payments.According to Rosen (1992), the increase in pay levels is directlyproportional to company size which is measured by the sales revenue.Rajagopalan and Finkelstein (1992) cited studies that show the use ofrisk-sharing arrangements varies with the riskiness and complexity ofthe business. However, these arrangements are more important in


high-technology intensive industries (Gomez-Mejia, 1992). Researchalso confirms that CEO compensation is more sensitive to changes inperformance in family firms (Dyl 1988, Wright et al., 2002).

The existence of risk-sharing arrangements entrenched in CEOcompensation contract is influenced by the agency theory. This theoryassumes a two-tier form of firm control: managers and owners. Agencytheory argues that there will be some friction and mistrust betweenthese two groups. The basic structure of the corporation is, therefore,the web of contractual relations among different interest groups witha stake in the company. (Jensen and Meckling, 1976, Fama, 1980, Famaand Jensen, 1983). Therefore, the ownership structure plays animportant role in the compensation contract.

Tosi et al., (2000) tested the hypothesis relating firm size,performance and CEO pay. The results show that firm size accountsfor more than 40% of the variance in total CEO pay, while firmperformance accounts for less than 5% of the variance. They alsoconcluded that pay sensitivities are relatively similar for both changesin size (5% of the explained variance in pay) and changes in financialperformance (4% of the explained variance in pay). Their meta-analysisalso suggests that moderator variables may play an important role.

Researchers have found that there is a positive relationship betweenCEO compensation and firm performance while a negative relationshipbetween CEO compensation and the board size. The strategicconsiderations such as R&D intensity have a direct positive influenceon CEO compensation. Hill and Phan (1991) found the relationshipbetween CEO pay and stock returns weakens with tenure. The resultssuggest that tenure influences the strength of the relationship betweenabsolute pay and firm size, absolute pay and firm risk, and changes inpay and stock returns.

In a study of 755 Canadian firms over the period of 1991-95, Zhou(2000) concluded that CEO pay rises with firm size and thecompensation is tied to the company’s performance. He also suggestedthat sales elasticity of CEO compensation is greater in larger firms andCEO turnover is negatively related to the firm’s stock performance.

Brick et al., (2006) examined the data of 1441 firms. They used theCEO and director compensation using firm characteristics, CEOcharacteristics and governance variables. They found that there is asignificant positive relationship between CEO and Director’scompensation. They found that Director’s compensation is closelyrelated to the monitoring and effort required of directors to ensurevalue maximization.


Kato and Kubo (2006) presented their first findings on pay-performance relations for Japanese CEO compensation. They concludedthat Japanese CEO’s cash compensation is sensitive to firmperformance. They also found that stock market performance plays aless important role in determination of Japanese CEO compensation.According to them, the bonus system makes CEO compensation moreresponsive to firm performance in Japan.

Mehran (1995) found that US firms with more outside directorshave positive relations with CEO compensation in equity based firms.Lewellen (1970) found strong relation between top executivecompensation and firm profitability in the US; the accounting basedprofit and stock market values are important determinants of CEOcompensation. Rondoy and Nilsen (2002) conducted study onNorwegian and Swedish firms and examined relationship amongcompany performance, corporate governance arrangements and CEOcompensation. They found that both CEO Compensation has strongpositive relationship with board size, foreign board membership andmarket capitalization. They found significant negative relationshipbetween CEO ownership and CEO compensation. They also found aninsignificant relationship between company performance and CEOcompensation or CEO tenure. Ramaswamy et al., (2000) conducted astudy on the determinants of CEO pay in India. They concluded thatCEO compensation is positively related to age and organizationalperformance. They also found negative relationship between familyownership and CEO pay. Furthermore, they found that CEO dualityand proportion of insider directors had no significant bearing on CEOcompensation in family-owned firms.

The theory of “Managerial Power Hypothesis” presented byBebchuk and Fried (2003) states that the weak system of corporategovernance in an organization as well as submissive boards allowsCEOs to determine (partly or in full) their compensation. This theoryalso predicts that some components of the compensation such as stockoptions, pension plans and severance pay are in less-observable formto which the allocation of value is hard. While this type of compensationmay be unethical as well as inefficient, recent theoretical work hasexplored how this has managed to survive in the market equilibrium;such work has also studied the costly firing of existing CEOs andover-the-board bargaining power of the replacement CEO. Anotherresearch has shown that firms with weak corporate governance systemsgive negative signals to the market by paying high compensationtherefore creating imbalance for talent competition, consequentlyinducing inefficiently high levels of pay.


While the above theory may be valid in itself, there is growingliterature that links the growth in CEO pay to the increasing demandfor CEO efforts. Due to increasing firm sizes and scale of operations,higher CEO talent is valuable thus being offered higher levels of pay(Rosen 1981). Gabaix and Landier (2008) argues that the six-fold increasein CEO pay can be associated to the equally-high growth in marketcapitalization.

Another theory proposes that due to advancements in technologies,product markets and firms’ characteristics, the optimum levels of CEOpay and incentives have also risen. The productivity of managerialefforts and talent may have increased because of more intensecompetition due to deregulation or entry by foreign firms (Hubardand Palia, 1995), because of improvements in the communicationtechnologies used by managers (Garicano and Rossi-Hansberg, 2006),or because of higher volatility in the business environment. Moralhazard problems may be more severe in larger firms, resulting instronger incentives for CEOs as firms grow (Gayle and Miller, 2009).There is a strong shift in the type of skills demanded by firms. Such ashift intensifies the competition for talent, improves the outside optionsof executives and allows managers to capture a larger fraction of theirfirms’ rents (Murphy and Zabojnik, 2004).

Several studies have included “size” as one of their constructs whichpredict executive compensation. It has been noted by Schefer (1998)that marginal return to executive effort varies with the firm size; largerfirms pay more for the efforts exerted. Tosi and Gomez-Mejia (1994)and O’Reilly et al., (1988) have examined company size in terms ofsales and found it to be a significant driver. Gomez-Mejia et al., (1987)and Akhibe et al., (1997) measured firm size in terms of total marketcapitalization and again found it a significant determinant of CEO pay.Others have used number of employees (O’Reilly et al., 1998) andmarket share (Tosi and Gomez-Mejia, 1994) as measure of size. Therehave been numerous studies showing that a strong relationship existsbetween firm size and CEO pay – the larger a firm, higher thecompensation of its CEO. Firm size is usually measured in terms ofannual sales or total assets or net profit. Roberts (1956) and McGuireet al., (1962) found that CEO Compensation was more strongly relatedto sales. This evidence suggests that CEOs of firms with rising salesare compensated higher so that they can direct their efforts towardsvolume growth. Similarly, in another study conducted by Hijazi andBhatti (2007), it was shown that company size is closely related to jobcomplexity and therefore CEO pay becomes directly proportional. On


another occasion, Lewellen (1970) found contradictory results showingthat compensation is positively related to firm size if measured in termsof profit. Some later studies showed that firm size is the strongestdeterminant of CEO compensation when it is measured in terms oftotal assets (Ciscel 1974, Chalmers et al., 2006). The research by Roberts(1956), Cosh (1975), Kostiuk (1989), and Murphy (1999) unanimouslysupport a strong positive pay-size relation.

Another strong determinant of CEO compensation is firmperformance. A manager’s pay should have a positive correlation withthe performance of firm as predicted by the Agency Theory. Firmperformance can be measured by different financial ratios but mostlyit is being measured by return on equity (ROE). Others measuresinclude market capitalization, shareholders’ returns, annual stockmarket returns which includes capital gains and dividends as ameasure, return on assets and profit margin. In various studies, it wasfound that ROE was positively related to bonuses and unrelated tosales (Finkelstein and Hambrick, 1988). Jensen and Murphy (1990) showa weak relationship between CEO compensation and stockholders’wealth.

Kubo (2001) found a strong association between CEO pay andcompany’s stock market performance in U.K. firms while a weakrelationship between the same two variables in Japanese firms. Stockperformance is used as a measure by Core et al., (1999) and Akhibeet al., (1997). This particular measure is a popular tool used by investorsto monitor their portfolios. Gomez-Mejia et al., (1987) used ROE as anindicator of firm performance. Lambert and Larcker (1985) have usednet income and found it to be significant.

According to Applegate (1994), Kets de Vries (1993), Allen andPanian (1982), Gomez-Mejia et al., (2001), family CEOs receive a lowerlevel of total compensation than their non-family counterparts. This isbecause the executives who have family ties enjoy job security and aresheltered by family bond. Moreover, the performance expectations offamily CEOs are less demanding than those of professional managers.Whereas a professional CEO has to jump on the bandwagon of thechallenging job, start delivering results and tend to be at the helm whenthe firm faces difficult prospects. For this reason, the professional CEOis compensated higher (Gomez-Mejia et al., 2001).

In recent years, financial markets around the world have undergoneexceptional internationalization and growth. With internationalinvestors looking to venture cross-border, there has been a rise in thedire need of criteria that enable them to have access to reliable


information. As seen in recent banking crisis, the board has almostfailed in its role as a supervisory body. To overcome this issue, one ofthe recommendations of Olivencia Code was to introduce independentdirectors to the board. The shareholders need independent directorsto represent their interest and who are unaffected by any conflict ofinterest or influence by significant shareholders.

After the Code of Corporate Governance came into practice in 2002,it became mandatory for listed companies to have independentdirectors on the board. This enhances independent and unbiasedmonitoring of company affairs and builds a stronger shareholder andinvestors trust in the company. According to Linck et.al. (2008), thepresence of independent directors in the Board is higher when CEOhas greater influence on the Board as well as when insiders have moreopportunity to extract private benefits.

The power of a CEO can come as a result of formal authoritydelegated by the CEO himself; hence, he may have direct or indirecteffect on the compensation committee. CEO duality is another sourceof power where CEO of any organization is also the chairperson of theboard (Rechner and Dalton, 1991). Evidence suggests that CEO payincreases as their influence over the board increases (Steven and Nina,2008). It may be argued that when CEOs are paid more in comparisonto their counterparts in other organizations, they tend to put in moreefforts to increase the company’s performance.

The power between board of directors and CEO is an importantdeterminant of CEO compensation (Finkelstein and Hambrick, 1988). Acore agency problem confronting the shareholders is moral hazard, wereCEO may misuse the resource of organization in his own self interest(Fong, 2004). Boyd (1994) investigated and produced evidence that thedual role is a significant factor in the ability of the CEO to exercise directpower over the board and indirectly over CEO compensation.

As suggested by previous literature, CEO pay and board size arepositively related. Corporate governance calls for a limit on board size(Steven and Nina, 2008). As Core et al., (1999) puts it: “The CEOCompensation is an increasing function of board size”. Theyinvestigated the impact of governance structure on CEO compensation.Their study revealed that CEOs earn more in weaker governancestructures. At another research, it was shown that bigger boardsdominated by older and busier directors are more generous to the CEO.Grinsten and Hribar (2004) and Cyert et al., (2002) have shown that theboard structure does help to explain cross-sectional variation in CEOcompensation.


THEORETICAL MODEL AND ECONOMETRIC METHODOLOGY

The main objective of this study is to investigate the determinants ofCEO compensation of those companies which are family ownedbusinesses and listed on Karachi Stock Exchange. In addition to this,the firm size, firm performance, CEO characteristics, boardcharacteristics have also been identified in this analysis. For thispurpose, the following form of the relationship between CEOcompensation and the explanatory variables for CEO compensationare used.

ln (CEO Comp)it = �1 + �2 ln (FS)it + �3 ln (FP)it + �4 ln (BS)it + �5 ln (ID)it

+ �6(CEO Duality)i + �7(FCEO)i + uit (1)

Where:

(CEO Comp)it = CEO compensations (consists of salary, bonus,incentives and rewards) of firm i at time t.

FS = Firm size (measured by two methods: net salesand total assets). Net sales are taken as proxyvariable for the firm size.

FP = Firm performance – measured by ROE as well asby stock performance.

BS = Board size (includes the number of directors onboard).

ID = Independent directors measured as thepercentage of independent directors as aproportion of directors.

CEO Duality = Dummy variable: Equal to 1 if the CEO alsoserves as member of the board otherwise 0.

FCEO = Dummy variable: Equal to 1 if the CEO belongsto the controlling family and takes a value of 0 ifthe CEO is outsider.

DATA

The date used for this research was collected from published financialstatements during the period of 2010-2012. A sample of 66 companiesfrom different sectors and industries is taken for investigation. Thesecompanies were identified through a tedious process that involvedmanual inspection of nearly 65% of listed companies in Karachi StockExchange. The data for CEO compensation were taken from the notes


to the accounts of all audited financial statements. Data for CEO dualityand family CEO were derived from the introductory notes while thenumber of independent directors was found from the mandatory“Compliance to Corporate Governance” report. All these informationhave come from the audited statutory reports which are prepared underAccounting Act and Regulations as directed by SECP. According tothe accounting law, it is mandatory for all listed companies to disclosethe aggregate costs of remuneration in cash and benefits in kind.

EMPIRICAL RESULTS

Table 1 shows the descriptive statistics of CEO performance and othervariables. It indicates that the frequency distribution of the CEOperformance and other variables are not normal. For normallydistributed return series, the skewness coefficient is zero and Kurtosisis 3. In a Guassian distribution, it would expect that the kurtosiscoefficient would be 3. Kurtosis, generally either much higher or loweris an indication of either extreme leptokurtic or extreme platykurtic(Parkinson, 1987). In Table 1, skewness CEO compensation is negativeand the coefficient of Kurtosis for is 2.534. It seems to fall under theplatykurtic distribution. The highest coefficient of kurtosis is observedin Firm size (5.692) which indicates that it is extreme leptokurtic. Thelower coefficient of kurtosis is observed in CEO performance (2.534)which indicates that the series is fat and short tail.

Table 1Descriptive Statistics

Number ofCEO Firm independent

compensation performance Firm size directors Board size

Mean 16.143 2.497 22.029 1.241 2.111Median 16.228 2.850 22.246 1.386 2.079Maximum 17.861 4.950 25.48 2.485 2.565Minimum 14.234 – 1.347 14.433 0.000 1.946Std. Dev. 0.806 1.356 1.999 0.568 0.164Skewness – 0.220 – 0.708 – 1.190 – 0.291 0.874Kurtosis 2.534 3.228 5.692 2.643 3.018Jarque-Bera 1.130 4.29 34.955 1.226 8.279Probability 0.568 0.117 0.000 0.542 0.016

Joruque Berra (JB) statistic is used to test the normal distributionof a series. If it is zero, it indicates that series is normally distributed.Generally, a series perfectly normally distributed when its skewness


statistic is zero, kurtosis is 3 and JB is zero. For firm performance, firmsize, and board size, skewness statistics are far from zero and JBstatistics are outside the standard critical values. However, for CEOcompensation and the number of independent directors, skewnessstatistics are negative but are not far from zero and the JB statistics of1.13 and 1.23, respectively, are not significantly different from zero atthe 5 percent level of significance which implies that these two seriesare approximately normal.

The Table 2 shows correlation coefficients of CEO compensation withother variables, namely, the firm performance, firm size, board size, CEOduality, family CEO, and number of independent directors. The p-valuesare in parentheses. The null hypothesis is that the coefficient of correlationof CEO compensation with other variables is zero.

Table 2Correlation Coefficients of CEO Compensation with Other Variables

CEO Compensation

Firm performance 0.160 (0.198)Firm size 0.256 (0.038)Board size 0.235 (0.059)CEO Duality – 0.127 (0.311)Family CEO – 0.059 (0.642)NO. of Independent Directors 0.045 (0.726)

Note: p-values are in parentheses.

As discussed above we have focused only on the family ownedbusiness firms which make it logical to incorporate CEO duality, familyCEO and number of independent directors with the CEO compensation.However, the correlation coefficients (Table 2) in the first two casesare negative and in the last case, though it is positive but insignificant.Thus, simple correlation analysis indicates that CEO compensation isnot affected by CEO duality, family CEO, and the number ofindependent directors. Results in table 2 also suggest that the firm sizeand board size are significantly and positively correlated with the CEOcompensation.

The pooled OLS technique is used to estimate equation (1) specifiedabove. Table 3 presents the regression results. As we can see fromTable 3, the firm size has significant positive effect on CEOcompensation. The estimated coefficient of 0.18 indicates that a onepercent increase in the firm size would increase the CEO compensationof the family-owned businesses by 0.18%. This result supports the viewthat as the firm size increase, CEO compensation in general increases.


The increasing size of a firm has a direct positive effect on achievingeconomies of scale which in return enhances firm performance andthus a final effect is on CEO compensation in the form of an increase.This result is in line with Rosen’s (1992) argument that a positiverelationship exists between the executive pay and the firm size.

Table 3Regression Results of CEO Performance and Economic Variables

Variables Coefficient Std. error t-Statistic Probability

Constant 10.828 1.749 6.190 0.000Firm Performance 0.049 0.085 0.577 0.567Firm Size 0.181 0.070 2.583 0.014Board Size 0.452 0.616 0.733 0.467No of Ind. Direct 0.286 0.184 1.552 0.128CEO Duality – 0.199 0.265 – 0.749 0.458Family CEO 0.079 0.220 0.358 0.722

R2 = 0.283 F = 2.70

Though the firm performance has shown a positive impact, theestimated coefficient (0.05) is insignificant. It is expected that as the firmperformances improve, the firms in general reward their CEOs withbonuses and other incentives. However, this may not be true for thefamily owned businesses listed in the KSE of Pakistan. Since these arefamily owned businesses, they did not find it necessary to reward theirCEOs further with the enhanced performances. The job security andscarcity of such positions in Pakistan may have influenced such decision.

Board size, in general, has positive effect on CEO compensationwhich implies that CEOs of larger boards get more salaries than theboards with fewer members. A larger board size indicates that morecapable and eligible people, well-equipped with skills and resources,become part of organization which strongly affects performance,market position and goodwill of company and intensifies CEO payscale. For the results presented in table 3 indicate that for a family ownedbusinesses in Pakistan such relationship does not exist between theboard size and the CEO compensation because the estimated positivecoefficient is statistically insignificant.

The induction of independent non-executive directors is believedto bring expert advice and skills into the company and helps in makingsound strategic decisions thus increasing firm performance andconsequently causes a hike in CEO compensation. Though theestimated coefficient (0.29) of the number of independent directors is


positive for the family owned businesses in Pakistan, it is not significanteven at the 10% level (significant at the 13% level).

We see that the coefficient of CEO duality (that is, if a CEO servesas a board member) is negative. One may argue that the dual powermay affect its efficiency and reduce performance of the company whichadversely affects the CEO compensation. However, both the CEOduality and family CEO are statistically insignificant.

CONCLUSION

This research examines the various possible determinants indetermining CEO compensation in family-owned listed companies inthe Karachi Stock Exchange (KSE). Using the pooled data with 66companies registered in KSE from 2010 to 2012, OLS method is used todetermine CEO compensation. The results indicate that firm size is themost important contributing factor for CEO compensation in familyowned businesses in Pakistan. This is not surprising in view of the factthat if the size of firm is increased, the overall economics of scale andunit economic scale increases, consequently enhancing the profitabilityof the firm which affects CEO compensation directly.

Following previous studies (cited above), we have considered otherplausible determinants of CEO compensation, namely, firmperformance, board size, number of independent directors, CEOduality, and family CEO. The estimated coefficients have expected signbut they are they individually statistically insignificant at the standardlevels of significance. However, sample F statistic reported in table 3indicates that these variables jointly explain the CEO compensation offamily owned businesses in Pakistan. Family owned businesses mayhave different characteristics than businesses in general (as the low R2

signifies). Other reasons could be the business environment andpractices may be different in Pakistan than other developed countries.

It is important to note that this research was conducted only onfamily-owned listed companies in Karachi Stock Exchange. Thisfindings may help for further studies on this area. Further studies inthis area may include large sample of companies listed in Karachi StockExchange.

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