Ron’s Financial Lab · Corporate Governance
The Paradox in One Sentence
Founder-led companies on Bursa Malaysia outperform on every financial metric—yet their founders get paid less, not more, than hired professional CEOs.
That single fact should surprise everyone.
Why Founders Outperform But Underpay Themselves
The data comes from a study of 362 family-owned listed firms in Malaysia (Foong & Lim, 2023). Here’s what it found:
Table
| Metric | Founder-CEO Firms | Non-Founder CEO Firms |
| Return on Assets | 6.0% | 4.3% |
| Return on Equity | 8.2% | 5.6% |
| Average CEO Pay | RM1.31 million | RM1.65 million |
The explanation is psychological, not financial. Founders don’t need a bonus to care. The company is their identity, their legacy, their creation. A hired gun needs incentives to stay focused. A founder is already locked in.
This is the Founder’s Paradox: the people most motivated to succeed are the least motivated by money.
Where the Paradox Breaks Down: Power
The pay-for-performance link does exist in founder firms—but only when the founder holds specific levers of power. Two matters most:
- The Dual Role (CEO + Board Chairman)
About 25% of founder-CEO firms combine both roles. When this happens, pay rises with performance. One person controls execution, and the body is meant to oversee it. The study found this to be consistent across all performance measures.
What it means: The founder isn’t extracting rent—they’re just removing friction between results and reward. But it also means no one is independently checking whether that reward is fair.
- Concentrated Ownership
Founder CEOs in the sample owned an average of 37% of shares (vs 21.7% for non-founders). The higher the stake, the tighter the link between company performance and personal pay.
What it means: Skin in the game aligns interests. But 37% also means the founder is the controlling shareholder. Minority investors have a limited voice.
The Family Factor
Here’s where governance gets murky. It doesn’t matter if the founder personally holds the title of chairman—as long as some family member does.
When a family member chairs the remuneration committee (the body that sets CEO pay), founder pay rises with firm performance. The family looks after its own.
The blunt truth: Family involvement strengthens the pay-performance link, but not necessarily for the right reasons. It may reflect aligned incentives—or captured governance.
The One Check That Actually Works
Independent directors do provide partial protection. A higher proportion of independents on the remuneration committee was associated with lower founder-CEO pay at the same performance level.
But here’s the catch: Malaysian family firms averaged only 43–46% independent directors on the board—well below the two-thirds threshold recommended by the Malaysian Code on Corporate Governance. And many companies still disclose pay in aggregate bands, making it impossible to see what the founder actually takes home.
The Bottom Line
Founder CEOs in Malaysian family firms are paid less on average than hired CEOs — even though they run better-performing companies.
But pay is not flat. When a founder also chairs the board or holds a large ownership stake, pay rises with firm performance.
The catch: the same power that tightens the pay-performance link also removes the checks that protect minority shareholders.
Based on Foong, S. S., & Lim, B. L. (2023). Does the founder CEO receive a higher pay for the firm’s performance? Evidence from Malaysia. Malaysian Journal of Economic Studies, 60(1), 1–28.
Data covers 2009–2015, pre-2017 governance reforms. This content is for educational purposes only and does not constitute financial advice.