1 IntroductionSocial ties between parties appear to matter for financial transactions. Cohen, Frazzini, and Malloy (2008) document that trades by mutual fund portfolio managers who invest in companies run by individuals with whom they have social ties (particularly educational overlap) significantly outperform other transactions carried out by the same. portfolio managers in companies with which they have no social ties. In this article, we examine the effect of the type of social ties studied by Cohen, Frazzini, and Malloy (2008) which also appears to be related to executive compensation. Institutional investors such as mutual funds can exercise some control over company decisions and decisions. outcomes, including firms' compensation policies (e.g., Hartzell and Starks (2003)). We ask whether the social ties between institutional investors and company managers influence how institutions exercise this control, and whether managers of companies heavily owned by socially connected mutual funds are compensated differently of their counterparts in less connected companies. We find that the total compensation of CEOs of “connected” companies (those with higher levels of socially connected ownership) is significantly higher than that of their less connected counterparts. Using Execucomp data from 1992 to 2006 and hand-collected data on educational ties between corporate executives and mutual fund managers, we show that for every percentage point of firm ownership which is a connected property, total executive compensation is 2.5% higher, taking into account other compensation determinants. When calculated at the average compensation in our sample, a one standard deviation increase in connected ownership correlates with...... middle of article...... D. (editors) , Volume 3. New York: North Holland. Muslu, Volkan, 2008, Inside Board Membership, Pay Disclosures and Incentive Compensation in Europe, University of Texas at Dallas Working Paper. Rothberg, B. and S. Lilien, 2006, Mutual funds and proxy voting: New evidence on corporate governance, Journal of Business & Technology Law 1, 157-184. Sias, Richard, Laura Starks, and Sheridan Titman, 2006, Changes in Institutional Ownership and Stock Returns: Assessment and Methodology, Journal of Business 79, 2869-2910. Smith, Clifford, and Ross Watts, 1992, The investment opportunity set and the policies of financing, dividends and corporate financing, Journal of Financial Economics 32, 262-292 Wermers, Russ, 2000, .Fund performance Mutual Funds: An Empirical Decomposition into Stock Selection Talent, Style, Transaction Costs and Expenses, Journal of Finance 55, 1655-1695.