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Executive social networks and CEO compensation

  • Hyeong Joon Kim Assistant professor, School of Business, Korea Aerospace University
This paper studies whether the CEO’s social networks affect CEO compensation. Given that the board has advisory and monitoring roles, a CEO with more external networks faces less necessity to share information with the board, and thus, the board’s monitoring weakens. Using network measures between the Korean firms’ executives, I find that CEOs with more external networks receive higher compensations with lower pay-for-performance sensitivities on average, compared to ones with less external networks. The results are robust to a battery of tests and an exogenous shock on the CEO’s external network by a presidential election. Additionally, I hypothesize that the CEO’s internal networks with the board have a trade-off effect: CEO-board connection may reduce information asymmetry between them; however, a connected board may not intensively monitor the CEO. Empirically, I find evidence supporting the latter, that the CEO-board connection enforces the effect of the CEO’s external networks on CEO compensation and pay-for-performance sensitivity.

  • Hyeong Joon Kim
This paper studies whether the CEO’s social networks affect CEO compensation. Given that the board has advisory and monitoring roles, a CEO with more external networks faces less necessity to share information with the board, and thus, the board’s monitoring weakens. Using network measures between the Korean firms’ executives, I find that CEOs with more external networks receive higher compensations with lower pay-for-performance sensitivities on average, compared to ones with less external networks. The results are robust to a battery of tests and an exogenous shock on the CEO’s external network by a presidential election. Additionally, I hypothesize that the CEO’s internal networks with the board have a trade-off effect: CEO-board connection may reduce information asymmetry between them; however, a connected board may not intensively monitor the CEO. Empirically, I find evidence supporting the latter, that the CEO-board connection enforces the effect of the CEO’s external networks on CEO compensation and pay-for-performance sensitivity.
Executive social network,Social connection,CEO compensation,Information asymmetry