Implications of Interlock Relationships on Executive Compensation: the Case of Germany

There is already a consensus that social capital plays a crucial role in executive compensation. However, previous empirical results are mixed and limited to U.S. data. This paper illustrates the effect of board social capital of CEOs in German DAX30 firms on the level and the risk of compensation (pay mix), thereby contributing to the ongoing discussion on the relationship between social capital and compensation. The tests showed that board social capital of CEOs positively influences both the level and the risk of compensation. The results however also show that the extent to which social capital influences compensation is dependent on moderators – firm risk and ownership concentration. While high firm risk may result in a positive relation between external social capital and compensation uncertainty, concentrated ownership may lead to a smaller compensation package with less risk.