Elite Corporate Networks and CEO Compensation: The Causes and Consequences of CEO Pay Premiums

CEO compensation has expanded dramatically over the past half-century, with network processes playing a pivotal role. We advance research on these processes by focusing on which CEOs are more likely to get pay premiums and how this shapes income going to other actors within the firm. Using Danish registry data and a weighted k-core measure of elite connections, our analyses highlight that CEOs embedded in the corporate elite can extract a substantial wage premium. These premiums are then followed by reductions in wages going back to workers over the next three years. However, the more of a firm’s board of directors who are similarly connected to the corporate elite, the less effective are those connections in generating a premium. These findings extend the role of social networks beyond just the diffusion of increasing compensation for CEOs to the creation of inequalities among CEOs and between CEOs and workers.