Social capital and executives’ pay dispersion: evidence from US public firms

Purpose This study investigates whether community social capital influences executive pay dispersion and how the resulting dispersion affects firm performance. Design/methodology/approach Using panel data from 3,055 US public firms across 458 counties from 1995 to 2016, we employ regression analyses to assess the influence of community social capital on two forms of top management team pay dispersion: hierarchical (CEO-to-other executives) and horizontal (among non-CEO executives). Furthermore, we use a structural equation model to examine how the pay dispersion shaped by community social capital affects firm performance. Findings We find that higher community social capital is significantly associated with lower horizontal pay dispersion among non-CEO executives, while hierarchical pay dispersion remains unaffected. Mediation analyses show that reduced horizontal pay dispersion serves as a mechanism through which community social capital improves firm performance. Research limitations/implications These findings highlight the role of cooperative norms in shaping compensation practices, mitigating opportunistic behaviors, and promoting equitable pay structures that enhance organizational outcomes. Originality/value This study provides empirical evidence to the emerging literature that examines how community social capital, an important contextual constraint, shapes executive pay practices and channels its effects into better firm performance.