Social pay reference point, external environment, and risk taking: An integrated behavioral and social psychological view

Compensation studies traditionally draw from behavioral agency model to explore how CEO pay influences risk taking, yet this literature has generated mixed results. Integrating behavioral agency model and social comparison theory, we develop a more complete theoretical model that shed light on the equivocal findings. We introduce the concept of social pay reference point that explains risk taking in response to the underlying behavioral and social-psychological mechanisms through which CEOs compare and frame their pay relative to social peers' pay. In addition, we establish theoretical boundary conditions of the hypothesized baseline effects by considering the moderating effects of environmental munificence and dynamism. We test our hypotheses on 545 manufacturing firms across 2878 firm-year observations spanning time period from 1994 to 2006. Our hypotheses receive considerable empirical support.