This paper examines how networks of professional contacts contribute to the development of the careers of executives of North American and European companies. We build a dynamic model of career progression in which career moves may both depend upon existing networks and contribute to the development of future networks. We test the theory on an original dataset of nearly 73 000 executives in over 10 000 firms. In principle professional networks could be relevant both because they are rewarded by the employer and because they facilitate job mobility. Our econometric analysis suggests that, although there is a substantial positive correlation between network size and executive compensation, with an elasticity of around 20%, almost all of this is due to unobserved individual characteristics. The true causal impact of networks on compensation is closer to an elasticity of 1 or 2% on average, all of this due to enhanced probability of moving to a higher-paid job. And there appear to be strongly diminishing returns to network size.
How important are professional networks in the evolution of an individual’s career? Substantial evidence has accumulated in recent years that networks are associated with professional advancement but causality has been difficult to establish. This is because, possibly, more dynamic individuals may both develop larger networks and have successful careers, even if networks did not contribute to their professional advancement. Moreover, the various channels though which networks can help career progression are difficult to disentangle. Is it because a large network of professional contacts might be helpful in generating new contracts or in facilitating transactions with suppliers and therefore might be rewarded by the employer through higher salaries or promotion? Or is it because a large network of professional contacts facilitates an individual’s mobility through access to a larger number of job opportunities?
This paper uses a dataset on the career of nearly 73 000 executives in over 10 000 European and North American companies to investigate these questions. We build a model of career progression which incorporates the two types of mechanism by which networks of professional contacts might contribute to the development of executives’ careers: they are valuable for the employer and they facilitate job mobility. Our empirical results suggest a substantial positive correlation between network size and executive compensation but this correlation is almost entirely due to individual characteristics. The global impact of networks on compensation is relatively small and is driven by the enhanced probability of moving to a higher-paid job. Overall, professional networks appear to have been over-hyped as determinants of executives’ professional success.
Updated on: 07/09/2019 14:35