Board Interlocking Network and the Design of Executive Compensation Packages
Social Networks, Vol. 41, pp. 85-100, 2015; doi/10.1016/j.socnet.2014.12.002
Posted: 6 Mar 2007 Last revised: 21 Dec 2016
Date Written: December 6, 2014
The standard approach used to model interlocks in the business and management literature is to treat each interlock of a network as an independent data point. However, such an approach ignores the complex inter-dependencies among the common director interlocks. We propose that an interlocking board network is an important inter-corporate setting that has bearing on how company boards make corporate decisions. Using a sample of 725 large U.S.-based public companies over the period 2007 to 2010, board member information, executive compensation information, and exponential random graph modeling (ERGM) techniques for social networks, we present evidence that board interlocks are positively linked with similarities in the design of executive compensation packages in interlocked firms, particularly the proportions of the options component. We also find evidence that board interlocks are positively linked with similarities in a number of board characteristics.
Keywords: Board interlocking network; Homophily; Imitation; Structural p* modeling; Executive compensation
JEL Classification: C50, D03, D85, G30, M52
Suggested Citation: Suggested Citation