The Effect of Social Pressures on CEO Compensation
33 Pages Posted: 25 Mar 2008 Last revised: 12 May 2015
Date Written: November 17, 2014
We find that social pressures have a positive effect on CEO compensation. Social pressures come from frequent interactions with other CEOs and wealthy people (Forbes 400 people and social elites) in the local area; from attending industry, alumni, and charitable events; and from displaying and comparing wealth through luxury homes. Pay premiums associated with social pressures (social premiums) are calculated after incorporating the effect of other pay determinants: local economic conditions, firm characteristics and performance, and corporate governance. We show that social premiums are lower when the physical distance is longer and social interactions less frequent. Our results hold in a pay change regression. They are also robust to adding state fixed effects and firm fixed effects, and to controlling for the industry pay norm.
Keywords: CEO compensation; social interactions; comparison groups.
JEL Classification: G3, J31, J33
Suggested Citation: Suggested Citation