The London School of Economics and Political Science the Emergence
Total Page：16
File Type：pdf, Size：1020Kb
The London School of Economics and Political Science The Emergence and Work Processes of Executive Remuneration Consultants Nadine de Gannes A thesis submitted to the Department of Accounting of the London School of Economics and Political Science for the degree of Doctor of Philosophy. London, March 2018 1 Declaration I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without my prior written consent. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. I declare that my thesis consists of 71,280 words. 2 Abstract This thesis studies the emergence of executive remuneration consulting as a distinct occupation from the 1990s, and the co-emergence of remuneration consultants and remuneration committees from the early 2000s. These actors, their work processes, norms and interlinkages are studied within the context of key social, economic and political factors, which shape the fields of remuneration consulting work and remuneration governance. In light of recent conflicting governance recommendations, it is important to evaluate the system of governance in relation to the historical reference points which have shaped executive pay practices. In so doing, this thesis analyses the dynamic processes in which numerous actors (remuneration committees, executive directors, Reward/HR directors, remuneration consultants and institutional investors), documents (corporate governance codes, governance guidelines and regulations) and tools (market trends analysis and pay benchmarking) are collectively engaged. Executive remuneration has overwhelmingly been researched from the agency perspective, delineated into two theoretical points of departure: optimal contracting (Jensen and Meckling, 1976) and managerial capture (Bebchuk and Fried, 2003; 2004). Despite managerial capture theorists seeking to address perceived shortcomings in optimal contracting, both result in an undersocialised (Granovetter, 1985; cf. Main, 2006) view of executive pay practices. Drawing on a genealogical approach (Foucault, 1971), Chapter 3 studies the emergence of executive remuneration consulting, while Chapter 4 examines the co-emergence of remuneration consultants and remuneration committees. Drawing on a field-based study at a leading remuneration consultancy, Chapter 5 presents the day-to-day work processes of executive remuneration consultants, and the ways in which consultants have produced their relevance in executive pay design and governance. Chapter 6 problematizes the market for executive talent and presents a conceptualisation of pay benchmarking practice. Chapter 7 argues that a dominant logic of risk has gone undocumented; that it is risk and risk management that ‘percolates and pervades’ (Power, 2004) executive remuneration governance. 3 Acknowledgements What a journey! Not a single step of which I travelled alone. I am grateful to the Department of Accounting for their financial and administrative support. I have benefitted immensely from the encouragement and scholarship of Professors Wim Van de Stede, Andrea Mennicken, Peter Miller and Bjorn Jorgensen. Thank you to the many remuneration consultants who gave of their time and energy to share their histories and experiences with me. Researchers are not born, they are built and my research methods are a testament to the diligence and direction of my second supervisor, Professor Matthew Hall. My first supervisor, Professor Michael Power, committed to constructing a social scientist, and I obliged by making it no mean feat. This thesis simply would not have been possible without Mike’s guidance and prescience. I was a leap of faith, and I am grateful you took it. Throughout, I was uplifted, pushed and prodded by a phenomenal cast of women. Thank you Renuka for your cheering spirit, and Rani, for laughter that dulls all pain. Laura, you were my anchor, and Dorothy, your belief carried me on the many days I struggled to find my footing. You saw the possibility of this well before I did. I was blessed with the love and support of my family. Dad, from your quiet confidence, I drew strength. Sasha and Nina, from blazing your own trails, I drew inspiration. Mom, for travelling wherever and whenever you were needed, I am exceedingly grateful. Ross, thank you for the countless times you read my chapters, offered words of encouragement and celebrated milestones. This journey was made worthwhile by the existence of one extremely accommodating little boy. Marcus, this is for you. 4 The Emergence and Work Processes of Executive Remuneration Consultants Table of Contents Page Declaration .............................................................................................................. 2 Abstract .............................................................................................................................. 3 Acknowledgements .......................................................................................................... 4 List of Figures and Tables…………………………………………………………9 Abbreviations ........................................................................................................ 10 1. Bringing the ‘Social’ in 11 1.0 Introduction 11 1.1 Literature review 14 1.2 Fresh perspective 21 1.2.1 Genealogical approach 22 1.2.2 Ethnographic influence 23 1.2.3 Social constructivist perspective 23 1.3 ‘Bricolage’ 24 1.4 Key actors 27 1.4.1 Executive Remuneration Consultants 27 1.4.2 Remuneration Committees 28 1.4.3 Human Resource / Reward Function 28 1.4.4 Statutory Regulators 29 1.4.5 Institutional Investors and Investor Representative Bodies 29 1.5 Executive pay problem 32 1.6 Key contributions 37 1.7 Overlap 39 5 2. Research Methods 41 2.0 Introduction 41 2.1 Original project formulation 41 2.2 Methodological approach 44 2.3 Research design 44 2.3.1 Archival data 45 2.3.2 Participant observation 49 2.3.3 Interview design 52 2.4 Thematic analysis 57 2.4.1 Reflexivity, writing and theorizing 58 3. The Emergence of Executive Remuneration Consulting 62 3.0 Introduction 62 3.1 Remuneration advice in the 1970s 64 3.1.1 Towers’ first mover advantage 65 3.2 The birth of ‘executive pay’ in Britain 67 3.2.1 Share scheme legislation 67 3.2.2 Thatcher’s Enterprise Culture 68 3.2.3 ‘Now Cash is Clean Again’ 71 3.3 Practice formation 73 3.3.1 Accounting firms 74 3.3.2 Law firms 75 3.3.3 ‘All about data’ 76 3.4 Key shifts in pay governance 76 3.5 Emergent occupation 78 3.5.1 New Bridge Street 78 3.5.2 Coopers and Lybrand 79 3.5.3 Still ‘all about the data’ 80 3.5.4 Coopers and Lybrand to PwC 81 3.6 Expanding work domains 81 3.6.1 Institutional investors shape consulting work 83 3.7 Moral panic deepens: The Greenbury Report 86 3.7.1 Greenbury’s Recommendations 87 3.8 Proactive governance, reactive legislation 90 3.9 ‘All about corporate governance’ 94 3.9.1 Shareholder engagement 95 3.10 The core logics of remuneration consulting work 97 6 4. The co-emergence of remuneration consultants and remuneration committees 103 4.0 Introduction 103 4.1 The rise of non-executive directors 104 4.1.1 Demands for greater board oversight 104 4.2 Board Oversight in the 1980s 107 4.3 The rise of institutional investors 109 4.4 The field of remuneration governance 111 4.4.1 Cadbury Report 111 4.4.2 Cadbury deliberates on pay governance 112 4.4.3 Impact of the Cadbury Report 114 4.5 Statutory intervention in remuneration governance 116 4.5.1 Higgs Review: Defining independence 117 4.6 Documenting Independence 118 4.6.1 No marked advantage for boutique firms 120 4.7 Continuous intervention in remuneration governance 121 4.7.1 Crisis, Collaboration & the Professional Code of Conduct 123 4.7.2 Consultants’ ‘policing’ role emerges 126 4.8 Discussion 127 4.9 Future work on gatekeepers’ independence 131 5. Remuneration consulting work 133 5.0 Introduction 133 5.1 Methods 134 5.2 The field site: ExComp 135 5.3 Analysts 136 5.3.1 Analyst recruitment 136 5.3.2 Analyst training 139 5.3.3 Analyst induction 140 5.3.4 Data collection 143 5.3.5 Data analysis 147 5.3.6 Communication skills 151 5.3.7 Establishing Norms 152 5.4 Progression to senior analyst 154 5.4.1 Background packs 156 5.5 Associates 157 5.5.1 Client work 157 5.6 Principals/Partners 160 5.6.1 Shaping Client Attention 162 5.7 Discussion 165 5.8 Links to Chapter 6 171 7 6. Pay benchmarking: Art or Science? 172 6.0 Introduction 172 6.1 Historical linkages 173 6.1.1 US Context 174 6.1.2 UK Content 177 6.1.3 Problematising the market for executive pay 181 6.2 Pay benchmarking practice 183 6.2.1 Peer Group Selection 185 6.2.2 Judgment in peer group selection 187 6.2.3 Communicating the benchmark 187 6.3 Reacting to the benchmark 188 6.4 The upward ratchet 190 6.5 Toward a theory of pay benchmarking 195 6.5.1 Benchmarking: a system of ranking 196 6.5.2 Internalization of the pay benchmark 199 6.6 Summary 202 7. Risk in Remuneration Governance 203 7.0 An impossible job 203 7.1 Risk in society 206 7.2 Risk in regulation 207 7.3 Risk in remuneration governance 209 8. Conclusion 213 8.0 Research questions revisited 213 8.1 Research limitations 213 8.2 Key contributions