Social Comparison and Reciprocity in Director Compensation

In this article, we develop theory regarding one set of mechanisms through which increases in the compensation of directors are transmitted throughout the director labor market. In a longitudinal study using director compensation data from 1996 to 2005, we test hypotheses about how directors’ use of social comparison processes, and reciprocity between CEOs and the board, drive up the compensation level for boards of directors. Specifically, we argue and find that directors’ home firms and interlocked boards serve as salient comparison groups for board members.