The impact of cultural and social values on executive compensation
Final Report Abstract
The overarching theme of the project was to examine the relationship between social values and executive compensation. The specific focus was on the public recognition ("Prestige") of firms and how it affects executives' compensation and career outcomes. In this project, we show that chief executive officers (CEOs) of prestigious firms earn less. Total compensation is on average 8% lower for firms listed in Fortune’s ranking of America’s most admired companies. We suggest that CEOs are willing to trade off status and career benefits from working for a publicly admired company against additional monetary compensation. Our identification strategy is based on matched sample analyses, difference-in-difference regressions, and a regression discontinuity design. We perform several robustness checks and exclude many alternative explanations, including that firm prestige just proxies for better corporate governance or for increased exposure of the pay-setting process to media attention. In another project, we examined the effects of individual reputation on career outcomes in the labor market for corporate directors. Using unique data on prestigious, individual-level awards, we isolate the career effects of reputational shocks by employing a number of identification strategies. We find that an enhanced reputation increases a director’s likelihood of sitting on the board of a firm with larger size, more public prestige, greater social responsibility, and less fraud. A positive shock to reputation allows a director to upgrade his or her portfolio by gaining new, more desirable board seats. Moreover, improved reputation raises the likelihood that a director holds key internal board leadership roles. Overall, our findings suggest the presence of strong reputational rewards and ex post settling-up in the internal and external markets for boardroom talent.
Publications
- 2012, Pride and Prestige: Why Some Firms Pay Their CEOs Less, ECGI Finance Working Paper No. 327/2012
Maug, Ernst G., Alexandra Niessen-Ruenzi, und Evgenia Zhivotova
- CEOs Earn Less at More-Prestigious Firms. Harvard Business Review Blog.
Focke, Florens, Ernst Maug, Alexandra Niessen-Ruenzi
- Director Reputation and Settling-Up: Evidence from Internal and External Labor Markets, Working Paper.
Chen, Mark A., Qinxi Wu, Evgenia Zhivotova
- The Impact of Firm Prestige on Executive Compensation.
Journal of Financial Economics, Vol. 123. 2017, Issue 2, pp. 313-336.
Florens Focke, Ernst Maug, Alexandra Niessen-Ruenzi
(See online at https://doi.org/10.1016/j.jfineco.2016.09.011)
