How symbolic remuneration contributes to the legitimacy of the company: An institutional explanation

Abstract

This research analyzes whether variable compensation is designed as an economically rational incentive to increase organizational performance, or whether it also responds to other factors such as the search for legitimacy. A case study demonstrates how the design of the variable compensation system, at both managerial and lower levels, takes into account the company's adoption of popular management practices that increase its legitimacy but not necessarily its performance.The results show that,in the design of their compensation policies, organizations do not always seek financial objectives, as agency theory maintains, but often have other social objectives such as the search for legitimacy, as institutional theory suggests. The management of incentives not only is used to align the interests of principal and agent, but also has a symbolic character, insofar as it signals that the company belongs to a particular social context.

Similarly different: a comparison of HRM practices in MNE subsidiaries and local firms in Turkey

“…Concomitantly however it is likely that there is a degree of mimetic isomorphism driving the convergence of HRM practices in these MNEs. The symbolic character of specific practices, such as for example performance-based compensation, signals that these MNEs belong to a particular social context (Fernandez-Alles et al 2006). Regardless, the finding that MNEs display similar HRM practices regardless of nationality does provide a degree of support for the convergence thesis.…”

Organizational governance and TMT pay level adjustment

“…In fact, Fernandez-Alles et al (2006) finds a strong link between the increase in the variable component of Spanish managers' compensation, especially in forms of stock options plans, and the adoption of popular practices that enable firms to enhance their legitimacy.…”

“…In Spain, therefore, the control mechanisms either rely on contractual clauses, governing incentives between shareholders and managers, or on direct supervision by the board (De Andres et al, 2005;La Porta et al, 1999;Ricart et al, 1999). Spain also has a low level of shareholder protection (La Porta et al, 1998), and a strong influence of mimetic pay practices between firms (Fernandez- Alles et al, 2006). Spain, therefore, represents a completely new scenario for testing dynamic relationships between TMT pay levels and corporate governance, providing new insights to the international governance literature (Firth et al, 2007).…”

Intellectual Capital Management Enablers: A Structural Equation Modeling Analysis

“…Some scholars classify organizational structure and design as intellectual capital (Baskerville and Dulipovici, 2006;Namasivayam and Denizci, 2006); others believe it precedes the development of intellectual capital (Fernandez-Alles et al, 2006;McGill, 2006). Some scholars would include well-structured management planning and control as intellectual capital (Guthrie and Petty, 2000;Stewart, 1997); others believe it is necessary for achieving inventories of intellectual capital (Herremans and Isaac, 2005).…”