1 Introduction
Social connections between parties seem to matter for financial transactions. Cohen, Frazzini, and Malloy (2008) document that the trades made by mutual fund portfolio managers who invest in companies run by people with whom they have social ties (specifically, an overlap in educational background) outperform substantially the other trades made by the same portfolio managers in firms with which they have no social connections. In this paper we examine the effect of whether the type of social ties studied by Cohen, Frazzini, and Malloy (2008) appear also to be related to the executives’ compensation.
Institutional investors such as mutual funds can exert some control over corporate decisions and outcomes, including corporate compensation policies (e.g., Hartzell and Starks (2003)). We ask whether social connections between institutional investors and corporate officers influence how institutions exert that control, and whether top officers at firms that have stock ownership heavily held by socially connected mutual funds are compensated differently than their counterparts at less-connected firms. We find that total CEO compensation at “connected” firms (those with higher levels of socially connected ownership) is significantly higher than at less-connected counterparts. Using Execucomp data from 1992-2006 and hand-collected data on educational ties between firm executives and mutual fund managers, we show that for each percentage point of a firm’s ownership that is connected ownership, total executive compensation is 2.5% higher, controlling for other determinants of compensation. When computed at the mean compensation in our sample, a one standard deviation increase in connected ownership correlates with ...
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When choosing to work in public or private sector companies there are many factors to consider? Do you want to work with a company that only considered the factors of its company or do you prefer to work for a company that have employee compensation? These factors are considerably important. Based on empirical studies one of the determining reason about private sector is that it compensation is based on the company cash profits and tax avoidance rather than value of the executive compensation. In my report I support my findings of several researchers: (Tafkov, 2009), (Reda & Schmidt, 2014), and (Clausen, 1999). Researcher findings from James Reda and David Schmidt based on severance considerations and the history of severance pay. The History of Severance Pay goes back to more than 60 years. According to James Reda and David Schmidt “it is very uncommon for CEOs to have agreements with their respective companies.” Second researcher is Paul Clausen the difference between executive compensation and a business value. A company value is based on the compensation of their business. Whenever compensation is high, the lower the profits and accumulated assets associated with the value of the company. In this report the literature review will further tell you the how private and public sector differences and the factor associated with each sector, the elements of executive compensation vs. value. The gap in the literature is why employee compensation differs from executive compensation, determining reasonable in executive compensation or business value, and the determinant of executive compensation in private firms. The methodology report will show how relative performance information (RPI) on feedback from employee performance when inc...
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