The Effect of Social Pressures on CEO Compensation
James S. Ang
Florida State University
Gregory Leo Nagel
Middle Tennessee State University
Indiana University - Kelley School of Business - Department of Finance
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.
Number of Pages in PDF File: 33
Keywords: CEO compensation; social interactions; comparison groups.
JEL Classification: G3, J31, J33
Date posted: March 25, 2008 ; Last revised: May 12, 2015