Keeping up with the Joneses: New research finds executives accept positions that enhance social status rather than increase pay

GAINESVILLE, Fla. – It’s been said that you’re only as good as the company you keep. With that in mind, it would be safe to say that if Apple’s Tim Cook, Berkshire Hathaway’s Warren Buffett or Amazon’s Jeff Bezos were your peers, you could count yourself among the leaders of some of the world’s top companies. With a combined net worth of over $217 billion, it’s also safe to say that you could also count yourself among the richest leaders of the world’s top companies.

While previous research has supported the idea that, for example, wanting to earn a slice of that $217 billion would motivate a C-suite level individual to move to another executive position, new research suggests being able to name yourself among the Cooks, Buffetts and Bezoses of the world is the more likely reason you’d want to make the switch.

A study by Federico Aime of Oklahoma State University, Jason W. Ridge of the University of Arkansas and Aaron Hill of the University of Florida finds that executives who earn less relative to other executives within their peer group accept jobs that allow them to level-up in social standing, rather than positions that give them more pay overall, even if that means keeping their pay similar to what they currently make.

“It’s sort of a ‘keeping up with the Joneses’ effect,” said Hill, Assistant Professor of Management at the Warrington College of Business. “[Executives] might not actually be better off, but they may feel better overall.”

Basing their study on an expansion of social comparison theory, which focuses on individuals’ engagement in selecting positive social comparison environments by drifting into groups that satisfy their needs for self-evaluation, the researchers tracked 1,001 executives who moved from one publicly traded firm to another between 1994 to 2010.

Based on this data, Aime, Hill and Ridge first hypothesized that executives who experienced larger disparity in relative pay in a prior top management team would seek to join top management teams where other team members’ pay ‘are near their own,’ or that these executives would move to top management teams that had less disperse pay structures.

Secondly, they hypothesized that as a way to reduce negative social comparison, executives would move to top management teams in which their relative position was better than it was in their previous top management team. Or, as one executive the researchers interviewed said, “This is my third position (in the top management team), and I’m not making much more than my first VP job, and I’ve moved twice. But what I’ve been able to do is move upward in the pecking order.”

With their hypotheses confirmed based on the results of their data, the researchers both expand social comparison theory and share important implications for executive employment.

“Our findings provide support for a fundamental aspect of Festinger’s (1954) social comparison theory that was previously untested in executive settings: the prediction that individuals will select positive social comparison environments by drifting into groups that satisfy their needs for self-evaluation,” the researchers write.

While previous research supported the idea that more money was a motivator for executives, Aime, Hill and Ridge’s results suggest otherwise, resulting in an important implication for those involved in attracting and maintaining executive talent.

“We show that, contrary to expectations of both the theory of wage dynamics (which predicts higher salaries to drive executive attraction and retention) and tournament theory (which points to advantages of high pay dispersion and large rewards), less dispersed pay structures may help attract executives seeking to restore more their social comparison situation,” the researchers write.

This research is forthcoming in the Strategic Management Journal.