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If you have a strong network of business colleagues who sit on each other's board, your pay can be a lot heftier but at the expense of your shareholders, according to a study by Ted Rogers School of Management and University of Toronto's Rotman School of Management. "There's a great deal of research on how a chief executive officer's pay is determined," says Fei Song, the study's co-lead author.
One school of thought is that their pay is determined by a corporation's board of directors. However, people who make up these boards are often CEOs of other companies themselves and are more likely to receive higher compensation packages because of this exclusive network. But what happens when CEOs are paid more? "If executives of corporations receive a higher pay, they may be taking company's revenue from the shareholders' pockets," says Song.
The researchers were testing a theory that executives, who have networks among their peers, are more likely to inflate their colleagues' pay as they believe it will be reciprocated.
