Working Paper: CEPR ID: DP16475
Authors: Jos Tavares; Sharmin Sazedj
Abstract: In this paper we assess the quantitative impact of a top manager’s network on pay, using anovel dataset that comprehends the entire career of top managers for the universe of businessfirms in Portugal. We construct 5 different network metrics that are sensitive to exogenousvariation. Further, we analyze these metrics using high dimensional fixed effects models andinstrumental variable procedures to address thoroughly endogeneity concerns. We confirm thatnetworks are associated to higher manager pay, both base wage and bonus. A one standarddeviation increase in the number of connections is associated to a 8% higher bonus and 5%higher total pay. The depth of the connections prevails over mere number, while indirectmeasures capturing the information value of networks also matter. Finally, well connectedmanagers that have access to private information not only further their career options andtheir bargaining power, they also benefit the firm. In other words, our results suggest that, fromthe firm’s perspective, productivity gains associated to large-network managers go beyond thepay premium, so that networks are not overpaid.
Keywords: manager pay; networks; rent extraction; productivity
JEL Codes: J30; J24; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Manager's network connections (D85) | Manager's bonus (M52) |
| Manager's network connections (D85) | Manager's total pay (M12) |
| Depth of connections (Y80) | Manager's pay (M12) |
| Access to private information (C81) | Manager's career options (M51) |
| Access to private information (C81) | Manager's bargaining power (C79) |
| Manager's network (D85) | Firm benefits (J32) |