Tit-for-Tat Compensation

36 Pages Posted: 23 Mar 2009 Last revised: 15 Dec 2009

See all articles by Joakim Bång

Joakim Bång

UNSW Australia Business School, School of Banking and Finance

Date Written: November 1, 2009

Abstract

In this paper I study tit-for-tat pairs, i.e. situations where CEOs serve on each others' boards in a way that makes it possible for them to reward (punish) favourable (negative) compensation outcomes partly influenced by the other player. I find that the residuals from predictive regressions of CEO compensation are positively correlated in such pairs, implying that these relationships indeed play a role in the compensation decisions. The result is robust to the inclusion of various CEO and board centrality measures as well as a control for the average effect of tit-for-tat relationships. When studying a sample of non-CEO top executives (whose compensation is typically recommended by the CEO, rather than the board) none of the effects are present. This indicates that the results are not driven by some unobserved characteristic of the firms whose CEOs form tit-for-tat pairs.

Keywords: Social networks, Executive compensation, Board interlocks

Suggested Citation

Bång, Joakim, Tit-for-Tat Compensation (November 1, 2009). AFA 2010 Atlanta Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1364517 or http://dx.doi.org/10.2139/ssrn.1364517

Joakim Bång (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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