An Institutional Logics Perspective on Executive Remuneration in Anglo-Saxon Countries

Abstract

Purpose: Corporate Logic and Investor Logic are the two dominant institutional logics of corporate governance in Anglo-Saxon countries (Lok, 2010; Zajac and Westphal, 2004). Corporate Logic portrays executives as trustworthy professionals that will voluntarily act in the best interests of shareholders. On the other hand, Investor Logic portrays executives as self-interested agents, who are capable of maximising shareholder value, but only if incentives schemes are used to align their interests with those of shareholders. Corporate Logic and Investor Logic have opposing implications for executive remuneration. However, prior research has only studied a few aspects of executive remuneration (Zajac and Westphal, 2004). This research examines executive remuneration, in a holistic manner, in order to determine the extent to which Corporate Logic and Investor Logic are embedded in corporate governance codes and corporate annual reports. Approach: Drawing on interpretive structuralism (Phillips and Hardy, 2002), a discourse analysis is used to deconstruct and elucidate the discourse on executive remuneration that is embedded in codes and corporate annual reports. The sample includes 55 codes and 75 annual reports produced between 1991 and 2010 in the UK, Australia (AU) and New Zealand (NZ). Multiple features of the texts are examined to ascertain how Corporate Logic and Investor Logic are embedded in the discourse. These features included 6 remuneration principles and 8 (broad) remuneration practices. Findings: Code issuers and companies draw on multiple remuneration principles to justify their remuneration practices, and these principles and practices are consistent with both Corporate Logic and Investor Logic. Consistent with Corporate Logic, the human resources and market principles are tied to base salaries and recruitment and retention schemes. Consistent with Investor Logic, the agency, motivation and pay-for-performance principles are tied to short- and long-term incentive schemes. As a set, these principles and practices represent what is deemed legitimate and rational, despite Corporate Logic and Investor Logic being theoretically incompatible. By drawing on both Logics, code issuers and companies are afforded much flexibility; that is, the prevailing institutional logics enable, rather than constrain, their discourse. Theoretical implications: Unlike prior research, this research recognises that the discourse on executive remuneration is highly nuanced and cannot be easily understood through a reductionist content analysis. While Zajac and Westphal (2004) evidenced a transition from Corporate Logic to Investor Logic, this research’s discourse analysis shows that both Logics coexist, as distinct from compete, in the discourse on executive remuneration. Practical implications: As both Logics coexist in the discourse, producers (e.g. code issuers and companies) and consumers (e.g. investors) of the discourse have to cope with much ambiguity and tension inherent in the remuneration principles and practices that constitute the standard remuneration package for executives. For companies, this means their executive remuneration practices cannot be easily challenged and their legitimacy can be maintained through the symbolic use of remuneration principles and practices. To enhance accountability, code issuers, investors and others should exert pressure on companies to simplify their executive remuneration practices and disclosure.