Why Have CEO Pay Levels Become Less Diverse?

Jochem, Torsten; Ormazábal, Gaizka; Rajamani, Anjana

doi:10.2139/ssrn.3716765

Cited by 4 publications

(6 citation statements)

References 54 publications

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Section: Discussionmentioning

confidence: 99%

“…Top pay decision-makers interact with specialist sources of advice in the form of pay consultants who are themselves on the one hand networked across the business community but on the other are self-interested in demonstrating their own independence from the targets of their clients' pay design task (Jochem et al, 2021;Ogden and Watson, 2012). Tensions inherent in the emphasis on independent input can mean that those accountable for sanctioning policy and its application -where, due to their own backgrounds and expertise, they are not fully equipped to navigate nuances surrounding top pay -fall back on standardised rather than situated independent decision-making pathways (Rodrigues, 2008) embedded over time (Sydow et al, 2020).…”

Section: Context-informed Vs Institutionally Path-dependent Decision-...mentioning

confidence: 99%

“…Independent consultants are thus hired to provide specialist input, for example external benchmarking data (Conyon et al. , 2009; Jochem et al. , 2021; Ogden and Watson, 2012; Wang and Johnson, 2012).…”

Section: Problematizing Codified Corporate Governance and Independent...mentioning

confidence: 99%

“…In discharging their functions, codified principles have long emphasised that top pay decision-makers should solicit "outside advice" (Greenbury, 1995, p. 4.17). Independent consultants are thus hired to provide specialist input, for example external benchmarking data (Conyon et al, 2009;Jochem et al, 2021;Ogden and Watson, 2012;Wang and Johnson, 2012). Remco members are directed to exercise independent judgement when evaluating such advice, as well as when receiving views from executive directors and other internal company sources (FRC, 2018).…”

Section: Introductionmentioning

confidence: 99%

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Do executive remuneration decision-makers know what's going on? The gap between independence and institutional contexts

Perkins

Shortland

2023

JOEPP

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PurposeDrawing on institutional theory, this study aims to analyse the regulation of executive remuneration as espoused in the United Kingdom (UK) codified corporate governance principles, focussing on sources of advice to decision-makers, the nature of the advice sought and given, and interaction of those involved in the process.Design/methodology/approachA qualitative research design was used. Data were assembled from interviewing non-executive board/remuneration committee members; institutional investors; external remuneration consultants and internal human resources (HR)/reward specialists. Results were analysed in accordance with the Gioia technique.FindingsTensions inherent in the interpretation of corporate governance codes are illustrated. Emphasis on independent advice combined with constraints on decision-makers' capacity to navigate the nuances of a complex field and reputational concerns risks standardised instead of bespoke remuneration approaches aligned with corporate contexts.Practical implicationsThere is a role for internal HR advisors to add value through their potential to reduce the gap within remuneration committees between institutional contexts and independent decision-making, facilitating more strategic human resource management inspired executive remuneration.Originality/valueApplication of institutional theory indicates the relevance of balancing external with internal sources to secure advice that is horizontally and vertically aligned within an organisation to meet the letter and spirit of corporate governance norms. Extending the explanatory power of institutional theory, care is needed though not to overlook the normative underpinnings of professional advisors' own value sets.

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Section: Discussionmentioning

confidence: 99%

Section: Context-informed Vs Institutionally Path-dependent Decision-...mentioning

confidence: 99%

Section: Problematizing Codified Corporate Governance and Independent...mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Do executive remuneration decision-makers know what's going on? The gap between independence and institutional contexts

Perkins

Shortland

2023

JOEPP

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“…Like the "investors" result, this high score is interesting, as proxy advisors should be acting in shareholders' interest. Instead, they may not be maximizing shareholder value, perhaps because they impose one-size-fits-all rules (Iliev and Lowry, 2015;Cabezon, 2020;Jochem, Ormazabal, and Rajamani, 2021). Shareholders, on the other hand, believe the main sources of controversy to be employees (82%/1.26), customers (75%/1.14) and policymakers (65%/0.92).…”

Section: Constraintsmentioning

confidence: 99%

CEO Compensation: Evidence From the Field

2021

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We survey directors and investors on the objectives, constraints, and determinants of CEO pay. 67% of directors would sacrifice shareholder value to avoid controversy on CEO pay, implying they face significant constraints other than participation and incentive compatibility. These constraints lead to lower pay levels and more one-size-fits-all structures. Shareholders are the main source of constraints, suggesting directors and investors disagree on how to maximize value. Respondents view intrinsic motivation and reputation as stronger motivators than incentive pay. They believe pay matters to CEOs not to finance consumption, but because it affects perceptions of fairness. The need to fairly recognize the CEO's contribution explains why flow pay responds to performance, even though CEOs' equity holdings already provide substantial consumption incentives, and why peer firm pay matters beyond retention concerns. Fairness also matters to investors, with shareholder returns an important reference point. This causes CEO pay to be affected by external risks, in contrast to optimal risk sharing.

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Contracting in Peer Networks

DeMarzo¹,

Kaniel

2023

The Journal of Finance

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We consider multiagent multifirm contracting when agents benchmark their wages to those of their peers, using weights that vary within and across firms. When a single principal commits to a public contract, optimal contracts hedge relative wage risk without sacrificing efficiency. But compensation benchmarking undoes performance benchmarking, causing wages to load positively on peer output, and asymmetries in peer effects can be exploited to enhance profits. With multiple principals, a “rat race” emerges: agents are more productive, with effort that can exceed the first best, but higher wages reduce profits and undermine efficiency. Wage transparency and disclosure requirements exacerbate these effects.

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Why Have CEO Pay Levels Become Less Diverse?

Cited by 4 publications

References 54 publications

Do executive remuneration decision-makers know what's going on? The gap between independence and institutional contexts

Do executive remuneration decision-makers know what's going on? The gap between independence and institutional contexts

CEO Compensation: Evidence From the Field

Contracting in Peer Networks

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