Discussion paper

DP16475 Networks and Manager Pay: Evidence from Time-Varying Exogenous Metrics

In this paper we assess the quantitative impact of a top manager’s network on pay, using a
novel dataset that comprehends the entire career of top managers for the universe of business
firms in Portugal. We construct 5 different network metrics that are sensitive to exogenous
variation. Further, we analyze these metrics using high dimensional fixed effects models and
instrumental variable procedures to address thoroughly endogeneity concerns. We confirm that
networks are associated to higher manager pay, both base wage and bonus. A one standard
deviation increase in the number of connections is associated to a 8% higher bonus and 5%
higher total pay. The depth of the connections prevails over mere number, while indirect
measures capturing the information value of networks also matter. Finally, well connected
managers that have access to private information not only further their career options and
their bargaining power, they also benefit the firm. In other words, our results suggest that, from
the firm’s perspective, productivity gains associated to large-network managers go beyond the
pay premium, so that networks are not overpaid.


Tavares, J and S Sazedj (eds) (2021), “DP16475 Networks and Manager Pay: Evidence from Time-Varying Exogenous Metrics”, CEPR Press Discussion Paper No. 16475. https://cepr.org/publications/dp16475