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

See all articles by Ling Heng Wong

Ling Heng Wong

University of Melbourne

André Gygax

University of Melbourne - Department of Finance

Peng Wang

University of Melbourne - School of Psychological Sciences

Date Written: December 6, 2014

Abstract

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

Wong, Ling Heng and Gygax, André and Wang, Peng, Board Interlocking Network and the Design of Executive Compensation Packages (December 6, 2014). Social Networks, Vol. 41, pp. 85-100, 2015; doi/10.1016/j.socnet.2014.12.002, Available at SSRN: https://ssrn.com/abstract=965991 or http://dx.doi.org/10.2139/ssrn.965991

Ling Heng Wong

University of Melbourne ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

André Gygax (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010
Australia

Peng Wang

University of Melbourne - School of Psychological Sciences ( email )

Parkville, Victoria
Australia

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