Executive Compensation, Fat Cats and Best Athletes

American Sociological Review 80 (2): pp. 299-328 APR 2015

Columbia Business School Research Paper

65 Pages Posted: 24 Oct 2011 Last revised: 21 Dec 2018

See all articles by Jerry Kim

Jerry Kim

Columbia Business School - Management

Bruce Kogut

Columbia University - Sociology/Columbia Business School

Jae-Suk Yang

Korea Advanced Institute of Science and Technology (KAIST)

Date Written: April 11, 2013

Abstract

The income gains in the top 1 percent are 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 changes in the macro patterns of the distribution of CEO compensation resulted from a process of diffusion within localized networks, propagating higher pay among corporate executives. We compare three candidate explanations for diffusion: director board interlocks, peer groups, and educational networks. The statistical results indicate that corporate director networks facilitate social comparisons that generate the observed pay patterns. Peer and education network effects do not survive a novel endogeneity test that we propose and estimate. A key implication is that local diffusion through executive network structures explains the changes in the macro patterns of income distribution evidenced in the inequality data.

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

Suggested Citation

Kim, Jerry and Kogut, Bruce and Yang, Jae-Suk, Executive Compensation, Fat Cats and Best Athletes (April 11, 2013). American Sociological Review 80 (2): pp. 299-328 APR 2015, Columbia Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=1948531 or http://dx.doi.org/10.2139/ssrn.1948531

Jerry Kim (Contact Author)

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

Bruce Kogut

Columbia University - Sociology/Columbia Business School ( email )

3022 Broadway
New York, NY MA 10027
United States

Jae-Suk Yang

Korea Advanced Institute of Science and Technology (KAIST) ( email )

291 Daehak-ro
Yuseong-gu
Daejeon, 34141
Korea, Republic of (South Korea)

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