Board interlocking network and the design of executive compensation packages

Directors often sit on multiple company boards; two boards are said to be interlocked when they have at least one common director. A board interlocking network is a set of companies together with all the interlocks that exist among them. We propose that such an interlocking network is an important inter-corporate setting, which has bearing on how company boards make important corporate decisions. Using a sample of 291 large U.S.-based public companies in 2003, board member information, the CEO compensation information, and the exponential random graph modeling techniques for social networks, we present evidence that board interlocks are positively linked with similarity in the design of CEO compensation packages in interlocked firms, particularly the proportions of stock-based components. Acknowledgments We would like to thank Peng Wang for patiently answering many of our questions about PNet. Any errors are our own. ∗Department of Finance, The University of Melbourne. Email address: [email protected] †Department of Finance, The University of Melbourne. Email address: [email protected]