Institutional Logics of Corporate Governance and the Discourse on Executive Remuneration
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Institutional Logics of Corporate Governance and the Discourse on Executive Remuneration Neil Crombie A thesis submitted for the degree of Doctor of Philosophy at the University of Canterbury, Christchurch, New Zealand, July 2013 Institutional Logics of Corporate Governance and Discourse on Executive Remuneration 2 Table of Contents Table of Contents 3 List of Figures 9 List of Tables 10 Acknowledgements 12 Abstract 13 Chapter 1: Introduction 14 1.1. Introduction 14 1.2. Motivation for My PhD Research 16 1.3. Research Architecture 19 1.4. Overview of this Thesis and Contribution to Knowledge 25 1.5. Conclusion 28 Chapter 2: Corporate Governance Theories and Research 30 2.1. Introduction 30 2.2. Corporate Governance 31 2.2.1. The Publicly Listed Company and Its Stakeholders 32 2.2.2. Corporate Objectives 34 2.2.3. Behavioural Models of Management 36 2.2.4. External Corporate Governance 38 2.2.5. Internal Corporate Governance 40 2.2.6. Summary 44 2.3. Theories of Executive Remuneration 45 2.3.1. A Critique of Theories of Executive Remuneration 52 2.4. Institutional Theory and the Concept of Institutional Logics 54 2.5. Institutional Logics of Corporate Governance 60 2.5.1. Political Logic 66 2.5.2. Stakeholder Logic 67 2.5.3. Corporate Logic 68 2.5.4. Investor Logic 69 2.5.5. Competing Institutional Logics in Organisational Fields 70 2.5.5.1. United States of America 70 3 Institutional Logics of Corporate Governance and Discourse on Executive Remuneration 2.5.5.2. Canada 71 2.5.5.3. United Kingdom 71 2.5.5.4. Germany 73 2.5.5.5. Other Countries 74 2.5.6. Gaps in Research 75 2.6. Conclusion 76 Chapter 3: Institutional Logics and Executive Remuneration 79 3.1. Introduction 79 3.2. Prior Research on Executive Remuneration 80 3.3. Principles of Executive Remuneration 85 3.4. Executive Remuneration Practices 98 3.5. Remuneration Decision-Making 105 3.6. Institutional Logics and Executive Remuneration 115 3.7. Conclusion 120 Chapter 4: Research Methodology and Methods 123 4.1. Introduction 123 4.2. Research Objective and Questions 124 4.3. Research Methodology 132 4.4. Research Question 1 135 4.4.1. A Pilot Study 135 4.4.2. Sample of Texts 136 4.4.3. Variables 140 4.4.4. Data Analysis 146 4.5. Research Question 2 147 4.5.1. Discourse Analysis 147 4.5.2. A Pilot Study 149 4.5.3. Sample of Texts 149 4.5.4. Stage 1: A Discourse Analysis of Executive Remuneration Practices 154 4.5.4.1. Variables 154 4.5.4.2. Data Analysis 156 4.5.5. Stage 2: A Discourse Analysis of Exemplars of Institutional Logics 157 4.6. Research Question 3 158 4.6.1. A Pilot Study 158 4.6.2. Sample of Interviewees 159 4 4.6.3. Data Collection 161 4.6.4. Data Analysis 163 4.7. Conclusion 165 Chapter 5: The Diffusion of Corporate Logic and Investor Logic 166 5.1. Introduction 166 5.2. Corporate Governance Codes of Practice 167 5.3. Corporate Annual Reports 174 5.4. Diffusion of the Remuneration Principles and Institutional Logics 183 5.5. Conclusion 185 Chapter 6: Institutional Logics and Discourse on Executive Remuneration 186 6.1. Introduction 186 6.2. The Discourse on Executive Remuneration 187 6.2.1. The Standard Remuneration Package for Executives 187 6.2.2. Salaries and Benefits 190 6.2.3. Pension/Superannuation 192 6.2.4. Other Fixed Remuneration 193 6.2.5. Short-term Incentives 194 6.2.6. Long-term Incentives 199 6.2.7. Minimum Shareholding Requirements 205 6.2.8. Mix of Fixed and Variable Remuneration 207 6.2.9. Level of Fixed, Variable and Total Remuneration 208 6.3. Exemplars of Institutional Logics 209 6.3.1. Stakeholder Logic 211 6.3.2. Corporate Logic 213 6.3.3. Investor Logic 217 6.3.4. Both Corporate Logic and Investor Logic 224 6.3.5. No Logics 224 6.4. Conclusion 225 Chapter 7: Remuneration Decision-Making in the Boardroom 227 7.1. Introduction 227 7.2. Background on Executive Remuneration in New Zealand 228 7.3. Corporate Objective 233 7.4. Behavioural Models of Executives 237 7.5. Influence of Stakeholders 241 5 Institutional Logics of Corporate Governance and Discourse on Executive Remuneration 7.5.1. Executives 241 7.5.2. Directors’ Network and Competitors 242 7.5.3. Recruitment Consultants 243 7.5.4. Remuneration Consultants 244 7.5.5. Investors and Analysts 245 7.5.6. Regulators and Code Issuers 248 7.5.7. Media and the Public 249 7.5.8. Employees, Customers, Suppliers and Others 250 7.5.9. Summary and Implications 251 7.6. Remuneration Principles 251 7.6.1. Human Resources Principle 252 7.6.2. Market Principle 253 7.6.3. Fairness Principle 254 7.6.4. Pay-for-Performance Principle 254 7.6.5. Motivation Principle 255 7.6.6. Agency Principle 256 7.6.7. Responsibility Principle 258 7.6.8. Conformance Principle 258 7.6.9. Remuneration Principles as a Set 259 7.6.10. Summary and Implications 260 7.7. Remuneration Practices 261 7.7.1. Fixed Remuneration 263 7.7.2. Short-term Incentives 265 7.7.3. Long-term Incentives 266 7.7.4. Mix of Fixed and Variable Remuneration 268 7.7.5. Level of Remuneration 269 7.8. Remuneration Processes 271 7.8.1. Hiring and Replacing Executives 271 7.8.2. Making Remuneration Decisions 275 7.8.2.1. Designing Remuneration Policies and Practices 275 7.8.2.2. Selecting Performance Measures 276 7.8.2.4. Performance Reviews 277 7.8.2.5. Hiring and Evaluating Remuneration Consultants 278 7.8.2.6. Awarding Remuneration to CEOs 279 6 7.8.3. Reporting Remuneration Decisions 280 7.8.4. Summary and Implications 284 7.9. Conclusion 284 Chapter 8: Discussion 287 8.1. Introduction 287 8.2. Nature of and Distribution of Belief in the Institutional Logics 288 8.3. Origins and Diffusion of Corporate Logic and Investor Logic 291 8.3.1. Origins of Corporate Logic and Investor Logic 292 8.3.2. Diffusion of Corporate Logic and Investor Logic in Recent Times 294 8.4. An Institutional Logics Perspective on Remuneration Decision-Making 297 8.4.1. Competitive and Institutional Pressures 298 8.4.2. Making Remuneration Decisions 301 8.4.3. Reporting Remuneration Decisions 304 8.4.4. Implications for Corporate Logic and Investor Logic 306 8.5. Institutional Positions 307 8.6. Conclusion 313 Chapter 9: Conclusion 314 9.1. Introduction 314 9.2. Main Findings and Contribution to Knowledge 314 9.2.1. Research Question 1 316 9.2.2. Research Question 2 318 9.2.3. Research Question 3 320 9.2.4. Further Findings 322 9.2.5. Contribution to Knowledge 323 9.3. Theoretical Implications 325 9.4. Practical Implications 331 9.5. Future Research Opportunities 334 9.6. Conclusion 337 References 338 Appendix A: List of Codes of Practice 377 Appendix B: List of Companies 382 Appendix C: Examples of Remuneration Principles 390 Appendix D: Institutionalising the Discourse on Executive Remuneration 397 Appendix E: Other Aspects of Codes of Practice 450 7 Institutional Logics of Corporate Governance and Discourse on Executive Remuneration Appendix F: Institutional Logics of Corporate Governance 454 Appendix G: Human Ethics Approval 475 Appendix H: Documents for Interviewees 477 Appendix I: New Zealand’s Discourse on Executive Remuneration 484 8 List of Figures Figure 1.1: Research Architecture 23 Figure 2.1: The Publicly Listed Company and its Stakeholders 33 Figure 3.1: Remuneration Committee’s Institutional Environment 107 Figure 5.1: Incidence of Remuneration Principles in the UK’s Codes 169 Figure 5.2: Incidence of Remuneration Principles in AU’s Codes 170 Figure 5.3: Incidence of Remuneration Principles in NZ’s Codes 171 Figure 5.4: Incidence of Remuneration Principles in Codes and Corporate Annual Reports from the UK, AU and NZ between 1989 and 2010 184 Figure 8.1: Institutional Positions 309 Figure 9.1: Towards an Institutional Theory of Executive Remuneration 328 9 Institutional Logics of Corporate Governance and Discourse on Executive Remuneration List of Tables Table 1.1: Corporate Logic and Investor Logic 20 Table 2.1: Theories of Executive Remuneration 47 Table 2.2: Institutional Logics of Corporate Governance 62 Table 2.3: A General Framework of Corporate Governance 64 Table 3.1: Theory Testing in Prior Research 83 Table 3.2: Principles of Executive Remuneration 88 Table 3.3: Presence of the Remuneration Principles in Organisational Discourse 90 Table 3.4: Remuneration Principles and Practices 100 Table 3.5: Executive Remuneration Principles and Practices – Revisited 117 Table 4.1: Discourse on Corporate Governance 126 Table 4.2: Paradigmatic Assumptions of This Research 134 Table 4.3: Sample of Codes of Practice and Official Reports 138 Table 4.4: Sample of Corporate Annual Reports 140 Table 4.5: Coding Procedure for Remuneration Principles 142 Table 4.6: Sub-sample of Codes and Corporate Annual Reports 150 Table 4.7: Sub-sample of Codes 151 Table 4.8: Sub-sample of Companies 153 Table 4.9: Investigative Procedure for Executive Remuneration Practices 155 Table 4.10: Sample of Interviewees 161 Table 4.11: Interview Topics 162 Table 5.1: Incidence of Remuneration Principles in Codes of Practice 168 Table 5.2: Incidence of Institutional Logics in Codes of Practice 172 Table 5.3: Change in Incidence of Institutional Logics in Codes of Practice 173 Table 5.4: Incidence of Remuneration Principles in Annual Reports of Largest 50 Publicly Listed Companies 175 Table 5.5: Number of Remuneration Principles in Annual Reports of Largest 50 Publicly Listed Companies 177 Table 5.6: Influence of the Number of Stock Exchange Listings on the Incidence of Remuneration Principles in Annual Reports of the Largest 50 Publicly Listed Companies 178 10 Table 5.7: Incidence of Remuneration Principles in Annual Reports of the Largest Continuously Publicly Listed Companies 178 Table