A Priori Conceptions, Methodological Dogmatism and Theory versus Practice: three reasons why CEO pay research lacks convergence

Abstract

"Pay Without Performance: The Unfilled Promise of Executive Compensation" by Lucian Bebchuk and Jesse Fried (Harvard University Press, 2004) challenges the view that executive remuneration arrangements are designed to maximise shareholder value. The authors argue that managerial power results in remuneration being structured to benefit executives at the expense of shareholders. This paper contends that Bebchuk and Fried's approach illustrates issues that contribute to the problematic nature of executive remuneration research. In particular, it is proposed that a priori conceptions about executive remuneration, methodological dogmatism in research approaches and a significant gap between theory and practice, each contribute to the lack of convergence in executive pay research. Illustrative data taken from interview-based research conducted with Australian non-executive directors supports the view that reliance on economic efficiency arguments alone does not provide a sufficient framework to explain the subjective, judgemental and socially interactive processes involved in determining executive pay. Copyright (c) 2007 The Author; Journal compilation (c) 2007 Blackwell Publishing Ltd.

CEOPay from a Social Norm Perspective: The Infringement and Reestablishment of Fairness Norms

“…We introduced social norm theory to study CEO pay. Social norm theory goes beyond economic efficiency arguments and provides “a framework that allows for the subjective, judgmental and socially interactive processes involved in determining CEO remuneration” (Hilary & Hui, ; O'Neill, :699). The empirical evidence shows that fairness and moral concerns explain why CEO pay is extensively discussed by the public.…”

“…By drawing on economic efficiency arguments, CEO wages have been explained by their relationship to company performance (Hall & Liebman, ; Jensen & Murphy, ; Murphy, ; Nyberg, Fulmer, Gerhart, & Carpenter, ; Tosi, Werner, Katz, & Gomez‐Mejia, ) or by their dependency on labor markets (Bebchuk & Fried, ; Gabaix & Landier, ; Kaplan & Rauh, ; Murphy & Zábojník, ; Rajgopal, Shevlin, & Zamora, ). A societal perspective that embraces the “subjective, judgmental and socially interactive processes also involved in determining CEO remuneration” (O'Neill, :699) has, however, been relatively rare. Some authors have argued on a purely theoretical basis in order to include normative discussions in CEO pay research (e.g., Walsh, ), while others have studied norm‐based aspects of CEO pay empirically, but without an explicit norm‐based analysis (Kuhnen & Niessen, ; Zajac & Westphal, ).…”

Has Agency Theory Run its Course?: Making the Theory more Flexible to Inform the Management of Reward Systems

“…In short, recognizing a role for vigilant and committed leadership, as stewardship theory does, complements agency theory. As O'Neill () suggests with an empirical study of Australian non‐executive directors, the reliance on economic efficiency arguments alone does not provide a sufficient framework to explain the subjective, judgmental and socially interactive processes involved in determining executive pay. While agency theory allows for an understanding of the conflicts of interests between principal and agent (defining the potential problems and the mechanisms to solve them), one can conceive of a different model of behavior in which leadership enhances commitment and ultimate team performance.…”

“…Although the concept of trust is not new in an academic context (Davis, Schoorman, Mayer, & Hoon Tan, 2000;Mayer, Davis, & Schoorman, 1995;Schoorman, Mayer, & Davis, 1996, 2007, in the last decade numerous studies have been made of "trust" and its repercussions in the management of organizations, for example, in the cases of inter-organizational cooperation (Ring & Van de Ven, 1994), alliances in governing structures (Gulati, 1995), and compromise/compliance of foreign subsidiary companies with large multinationals (Kim & Mauborgne, 1993).…”

Corporate Governance, Board of Directors, and Firm Performance

“…A major factor in the growing disparity of executive and non-executive compensation has been the increasing use of stock options in executive compensation, and in most firms only a small proportion of employees have access to such options (Frydman & Saks, 2010). While these compensation trends have been evaluated in the literature from a variety of perspectives (Weisbach, 2007), the role of "subjective, judgmental and socially interactive processes" (O'Neill, 2007) in executive compensation has received little attention. The study by Rost and Weibel makes an important contribution by developing the relation of social norms to compensation, and then using a vignette-survey with a representative sample of Swiss citizens to document several novel results.…”