Looking for respect? How prior TMT social comparisons affect executives' new TMT engagements

Abstract

We extend social comparison theory and research in top management teams by showing that negative social comparisons in TMTs have implications for subsequent employment decisions after executive turnover. In a sample of 1,001 executive employment moves to new TMTs, our results show that executives with lower relative pay in the firms they exit join firms that improve their social comparison situation within the new TMT when compared to their previous experience—while not necessarily providing larger improvements in pay. These findings complement social comparison views on executive turnover by showing that executives' new employment decisions are guided by the correction of negative social comparisons in their new firms. We show that executives who experience negative social comparisons in pay in a TMT because of their lower relative rank in its pay structure select new employment in firms with more narrow pay differences within their TMT. In addition, we show that such executives improve their relative pay in comparison to others in the TMT in their new TMTs without necessarily experiencing abnormal improvements in pay. These findings show that social comparisons in pay between TMT members may not only drive executive turnover, as previously shown in the literature, but also directs executive decisions about new TMT engagements. Together, our findings imply that social comparisons are an important factor in executive employment decisions.