Abstract
In this paper we study the influence of board network ties on CEO compensation. Taking a board network approach we assume that ties to highly compensated CEOs of other firms become important reference points for the compensation of the focal firm’s CEO. Specifically, we hypothesize that board network ties to above average paid CEOs will result in above average pay for a tied-to CEO of the focal firm. In addition, we account for ownership concentration as a boundary condition and analyze which components of the compensation package are affected by these reference points. Testing our hypotheses within a complete set of board network ties for all large publicly listed firms in Germany (HDAX 100) between 2006 and 2011 we find that once information on high CEO compensation travels through the network and is in the minds of those involved in determining the focal firm’s CEO pay, it biases decision-making on CEO compensation.
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