Research: Networks play a key role in CEO pay and wage inequality within companies
New research reveals how elite corporate networks boost CEO pay and affect wage growth for employees.
Short Abstract
This research by Associate Professor Thomas Poulsen et al. examines how elite corporate networks in Denmark shape CEO pay and internal wage inequality. Using comprehensive registry data, the authors develop a measure of “elite embeddedness” based on interlocking board networks. The study shows that CEOs positioned at the core of Denmark’s business elite receive wage premiums beyond what firm characteristics can explain, reflecting how status and bargaining power are tied to elite network positions. Importantly, these effects vary across firms: boards strongly embedded in the elite network can counterbalance CEO pay claims and limit wage premiums. The article also shows that higher CEO pay is associated with slower subsequent wage growth for employees, even within Denmark’s regulated labor market. This suggests that CEO pay decisions are part of a wider resource allocation dynamic affecting the firm’s wage structure.
Key findings
- CEOs with strong embeddedness in Denmark’s corporate elite receive wage premiums above expected levels.
- When boards are equally elite-embedded, they can effectively counterbalance CEO bargaining power and limit compensation growth.
- CEO pay premiums correlate with reduced wage growth for employees over the next years.
- Social status and elite embeddedness, beyond firm performance, play a significant role in shaping executive pay and contribute to intra-firm inequality.