Executive remuneration principles, practices and processes: an institutional logics perspective

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.