Status hierarchies and norm diffusion: the increase of top incomes in high finance

In this article, I argue that small, but lucrative high-status subgroups lead to an upward ratcheting of compensation levels through the diffusion of norms. Combining relational theories of inequalities and theories of social norms I show how subfield status hierarchies play out at the firm level. I examine the impact of excess compensation in alternative finance (private equity, hedge and venture funds) on traditional finance. Based on multilevel regression on 2159 US and UK executives and longitudinal analyses on 261 firms from 2010 to 2017, I find first, that managers with an alternative finance background receive a pay premium in traditional finance (19.7%). Secondly, within the UK, compensation levels in organizations that witnessed the arrival of sectoral migrants rise above the expected increase. The findings suggest that understanding income dynamics requires detailed scrutiny of high-status subgroups, especially if activities are structured as opaque and lightly regulated organizational forms.