'But, Mom, All the Other Kids Have One!' - CEO Compensation and Director Networks

36 Pages Posted: 14 Jun 2006 Last revised: 17 Mar 2009

Amir Barnea

HEC Montreal

Ilan Guedj

Bates White, LLC

Date Written: June 1, 2006

Abstract

This paper explores how networks of directors affect CEO compensation. We find that firms that have more connected board members, and whose board members are connected to better connected firms award their CEOs a higher compensation. Controlling for firm size, investment opportunities, industry, and performance, a CEO of a firm which is in the top quintile of connected firms receives a 10% higher salary and a 13% higher total compensation than a CEO of a firm which is in the bottom quintile of connected firms. These results are robust to alternative explanations such as interlocked boards, busy boards, and entrenched boards; they are also robust to the independence of the board, geographic location of the firm, different governance measures, and potentially unobserved CEO or firm characteristics. These results highlight the important role that board networks play in the decision to compensate a CEO.

Keywords: Executive compensation, Networks, Directors, Corporate Governance

JEL Classification: G3, G34, K22, L14

Suggested Citation

Barnea, Amir and Guedj, Ilan, 'But, Mom, All the Other Kids Have One!' - CEO Compensation and Director Networks (June 1, 2006). McCombs Business Research Paper No. FIN-04-06; 1st Annual Conference on Empirical Legal Studies Paper. Available at SSRN: https://ssrn.com/abstract=908673 or http://dx.doi.org/10.2139/ssrn.908673

Amir Barnea

HEC Montreal ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-7321 (Phone)
514-340-5632 (Fax)

Ilan Guedj (Contact Author)

Bates White, LLC ( email )

2001 K St., NW
Suite 700
Washington, DC 20006
United States

HOME PAGE: http://www.bateswhite.com/professionals-Ilan-Guedj.html

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