Abstract

http://ssrn.com/abstract=1948531
 
 

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Executive Compensation, Fat Cats and Best Athletes


Jerry Kim


Columbia Business School - Management

Bruce Kogut


Columbia Business School - Management

Jae-Suk Yang


Columbia University - Columbia Business School

April 11, 2013

Columbia Business School Research Paper

Abstract:     
The income gains in the top 1 percent is the primary cause for the rapid growth in U.S. inequality since the late 1970s. Managers and executives of firms account for a large proportion of these top earners. Chief executive officers (CEOs) in particular have seen their compensation increase faster than the growth in firm size. We propose that contagion of changes in social norms was mediated through a process of social comparison within localized networks, propagating higher pay among corporate executives. By analyzing this increase in pay as a diffusion process, this paper compares three candidate explanations for contagion: director board interlocks, peer groups, and educational networks. After accounting for endogeneity, the statistical results indicate that board of director and peer group networks facilitate social comparisons that generate the observed pay patterns. A key implication is that exogenous shocks such as the Internet boom provided a shock that re-set the norms of what constitutes fair pay, instigating a process of social comparison within networks, ultimately resulting in the diffusion of high pay for CEOs.

Number of Pages in PDF File: 65

Keywords: Executive Compensation, Social Comparison, Social Networks, Endogeneity, Chief Executive Officers, Income Distribution

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Date posted: October 24, 2011 ; Last revised: April 12, 2013

Suggested Citation

Kim, Jerry and Kogut, Bruce and Yang, Jae-Suk, Executive Compensation, Fat Cats and Best Athletes (April 11, 2013). Columbia Business School Research Paper. Available at SSRN: http://ssrn.com/abstract=1948531 or http://dx.doi.org/10.2139/ssrn.1948531

Contact Information

Jerry Kim (Contact Author)
Columbia Business School - Management ( email )
3022 Broadway
New York, NY 10027
United States

Bruce Kogut
Columbia Business School - Management ( email )
3022 Broadway
New York, NY 10027
United States

Jae-Suk Yang
Columbia University - Columbia Business School ( email )
3022 Broadway
New York, NY New York 10027
United States
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