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The Geography of Executive Compensation

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

March 15, 2012

Based on a variety of theoretical motivations, this paper first examines empirically whether geography affects CEO compensation and finds that it does. Specifically, if the CEOs of firms that are geographically-close to CEO i’s firm experience a 1% increase in salary in a given year, CEO i will experience a 0.3% increase in salary the following year ceteris paribus. Based on cash and total compensation, the effects are roughly half and one third the size of the salary effect. These results are obtained while controlling for previously-documented factors that affect CEO compensation – including the average CEO compensation at similar-sized industry peers – and proxies for the cost of living. Similar results are obtained using a variety of alternative specifications, including instrumental variable regressions to deal with potential endogeneity concerns.

The paper then examines four possible reasons for geography to affect CEO compensation: local labor market competition for CEOs; local hiring of similar CEOs; the effect of 'leading firms' in the vicinity; and envy among geographically-close CEOs. The results are most consistent with envy.

Number of Pages in PDF File: 53

Keywords: CEO compensation, geography, envy

JEL Classification: D8, G3, J3, R1

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Date posted: March 17, 2012  

Suggested Citation

Bouwman, Christa H. S., The Geography of Executive Compensation (March 15, 2012). Available at SSRN: https://ssrn.com/abstract=2023870 or http://dx.doi.org/10.2139/ssrn.2023870

Contact Information

Christa H. S. Bouwman (Contact Author)
Texas A&M University ( email )
360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)
HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center
2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

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References:  104
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