CEO Influence over Own Compensation

• In Event: Financial Accounting and Reporting 4

Abstract

This paper examines whether CEOs use their business and social connections with the members
of the compensation committee to influence their own compensation using 1480 firm-years from
2007 to 2010. We argue that the business and social connections between the CEO and the
compensation committee and the business and social connection among the compensation
committee members themselves would both be positively associated with CEO compensation
level. Moreover, we argue that a “connected” compensation committee members would be more
likely to use compensation consultants to justify higher levels of pay. Our findings indicate that
CEOs use the business connections to increase their own pay. In contrast we find that social
connections between the CEO and compensation committee members lead to lower levels of
CEO compensation. Moreover, we do not find evidence that “connected” compensation
committees uses the recommendations provided by the compensation consultants to justify
higher levels of pay.

Authors

• So Yean Kwack, Temple University

• Steven Balsam, Temple University