Fair Pay Practices in Small Ventures: The Interplay of Founder Competency and Racial Identity

Small business entrepreneurs face challenges in attracting investors and stabilizing their ventures, yet many adopt socially responsible HRM practices beyond shareholder demands, legal compliance, and union contracts. What drives these choices remains underexplored. Drawing on upper echelon theory, this study examines how CEO founders’ social-emotional skills and race predict the adoption of fair pay practices. We further suggest that access to market salary data and pay equity information (fair pay knowledge) serve as cognitive mechanisms linking founder characteristics to compensation decisions. Survey data from 125 women entrepreneurs in the U.S. indicate that higher responsible decision-making competency is associated with greater fair pay knowledge, which in turn predicts implementation of fair pay practices. Notably, after accounting for human capital, social-emotional skills, and firm revenue status, Black, Indigenous, and people of color reported lower adoption of fair pay practices, largely due to reduced fair pay information access relative to their White counterparts.