The Effect of Social Pressures on CEO Compensation

33 Pages Posted: 25 Mar 2008 Last revised: 12 May 2015

James S. Ang

Florida State University; Florida State University - College of Law

Gregory Leo Nagel

Middle Tennessee State University

Jun Yang

Indiana University - Kelley School of Business - Department of Finance

Date Written: November 17, 2014

Abstract

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

Ang , James S. and Nagel, Gregory Leo and Yang, Jun, The Effect of Social Pressures on CEO Compensation (November 17, 2014). Available at SSRN: https://ssrn.com/abstract=1107280 or http://dx.doi.org/10.2139/ssrn.1107280

James S. Ang

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Gregory Leo Nagel

Middle Tennessee State University ( email )

P.O. Box 50
Murfreesboro, TN 37132
United States

Jun Yang (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3395 (Phone)
812-855-5875 (Fax)

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