Author Abstract
Effective design of executive compensation contracts involves choosing and weighting performance measures, as well as defining the mix between fixed and incentive-based pay components, with a view to fostering talent retention and goal congruence. Despite large variability in firms' characteristics and goals, compensation design is subject to isomorphic pressures, which cannot be completely explained by industry affiliation or peer group membership. Inter-firm professional network connections, such as board interlocks and compensation consultants, provide means and opportunities to observe and imitate organizational behavior across firms. Using information disclosed in proxy statements of publicly traded companies, I predict and find that firms connected through board interlocks or common compensation consultants display a higher degree of isomorphism in the design of executive compensation contracts. However, consultants with larger customer base and greater expertise mitigate these isomorphic tendencies. Additionally, interlocks and compensation consultants exert different influences on different aspects of the compensation design.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: August 2015
- HBS Working Paper Number: 16-019
- Faculty Unit(s): Accounting and Management
