This study analyzes the effect of social pressures on CEO compensation focusing on social interactions within 60 miles of the firm. Social premiums in CEO pay are in excess of what can be explained by firm performance and characteristics, corporate governance, and local economic variables. Using the S&P 500 companies during 1994-2005, we show that the average social premium in a social circle with 31 CEOs (the 75th percentile of social circles) is $1.29 million higher than that in a circle with six CEOs (the 25th percentile). Golfing, sharing directors, and comparing mansions are likely avenues of social interactions.

This study analyzes the effect of social pressures on CEO compensation focusing on social interactions within 60 miles of the firm. Social premiums in CEO pay are in excess of what can be explained by firm performance and characteristics, corporate governance, and local economic variables. Using the S&P 500 companies during 1994-2005, we show that the average social premium in a social circle with 31 CEOs (the 75th percentile of social circles) is $1.29 million higher than that in a circle with six CEOs (the 25th percentile). Golfing, sharing directors, and comparing mansions are likely avenues of social interactions.