Title: Executive remuneration principles, practices and processes: an institutional logics perspective
Authors: Neil A. Crombie
Addresses: School of Business and Economics, University of Canterbury, Private Bag 4800, Christchurch 8041, New Zealand
Abstract: Agency logic assumes that executives are greedy and opportunistic, which implies that monetary incentives are necessary to ensure they act in the best interests of shareholders; whereas corporate logic assumes that executives are trustworthy professionals, which implies that they will act in the best interests of shareholders irrespective of the use of monetary incentives. Prior qualitative research on executive remuneration is reviewed in this paper in order to ascertain how these logics influence the decision making of remuneration committees. Given that agency logic and corporate logic are opposites, there is a tension between the remuneration principles of pay-for-performance and competitive pay. However, corporate logic trumps agency logic as remuneration committees prioritise competitive pay ahead of other principles, so that talented executives will be retained. The paper also discusses a range of other remuneration principles and practices as well as the remuneration processes that have diffused both logics amongst remuneration committees.
Keywords: corporate governance; executive compensation; compensation committees; institutional theory; institutional logics; executive remuneration; agency logic; corporate logic; decision making; pay-for-performance; performance-related pay; competitive pay; remuneration principles; remuneration practices.
International Journal of Corporate Governance, 2015 Vol.6 No.2/3/4, pp.98 - 140
Received: 10 Apr 2015
Accepted: 19 Nov 2015
Published online: 13 Feb 2016 *