A RHETORICAL-DISCURSIVE ANALYSIS OF THE INSTITUTIONALISATION OF LONG TERM INCENTIVE PLANS IN THE UK 1992-2014 S J WYNNE PhD 2018 1 A RHETORICAL-DISCURSIVE ANALYSIS OF THE INSTITUTIONALISATION OF LONG TERM INCENTIVE PLANS IN THE UK 1992-2014 STEVEN JOHN WYNNE A thesis submitted in partial fulfilment of the requirements of the Manchester Metropolitan University for the degree of Doctor of Philosophy (PhD) Department of Accounting, Finance and Economics the Manchester Metropolitan University 2018 2 Abstract In the context of increases in both the quantum and complexity of executive remuneration in the UK, understanding the rapid diffusion of pay-for- performance models, and in particular Long Term Incentive Plans (LTIPs), has become a focus of extensive analysis and debate. The absence of unequivocal evidence of a strong correlation between the adoption of LTIPs as an element of executive remuneration and improved company performance entails the need to develop supplementary explanations for the rapid diffusion of LTIPs. A neglected aspect of the explanation of the diffusion of LTIPs is an understanding of the rhetorical-discursive framework used to legitimate their use. This thesis uses a rhetorical-discursive methodology, within a rhetorical institutionalism theoretical framework, to disclose and analyse the rhetorical devices and structures used to legitimate LTIPs, with particular reference to the role of wider cultural templates and social endoxa. The findings identify three empirical rhetorical-discursive structures - the rhetoric of the metonymic mask of relative and comparative performance, rhetoric of transparency, and the rhetorical deflection of the human resource argument – that inform and respond to a central aporetic tension that arises within the discourse between the evaluation an individual director’s performance in terms of their differential impact on company performance, and the use of external, aggregated and comparative statistics to infer that differential performance. This analysis contributes a new understanding of the nature of the discursive phenomena that have informed the diffusion and institutionalisation of LTIPs in the UK over the period 1992-2014. The thesis also extends our understanding of rhetorical 3 institutionalisation by demonstrating how the institutionalisation of LTIPs can be understood as an iterative process, in which the construction and reconstruction of arguments mirrors the cycloidal path of a stone on a wheel, with alternating periods of increasing ‘taken for grantedness’ and periods of conflict and contestation engaging with the rhetorical tension created and maintained by the central aporetic of executive pay. 4 Declaration No portion of the work referred to in this thesis has been submitted in support of an application for another degree or qualification at this or any other university or institute of learning. Signed Steven John Wynne Date 5 Acknowledgements I would like to thank my Director of Studies, Dr Tidings Ndhlovu, for his cheerful patience and encouraging words. A great deal of thanks are due to my Supervisor, Dr Andrew Rowe, for the constructive and always beneficial advice and guidance regarding the structure and articulation of this thesis. Special thanks go to my wife, Diane, and daughter, Maddie, for all the forbearance, support and understanding they have shown during the completion of this work. 6 Table of Contents Abstract .................................................................................................................................... 3 Declaration ............................................................................................................................... 5 Acknowledgements .................................................................................................................. 6 List of Figures and Tables ....................................................................................................... 12 Chapter One: Introduction ..................................................................................................... 13 1.1 Research Background ................................................................................................... 13 1.2 Research Context ......................................................................................................... 15 1.3 Summary of the Thesis Findings .................................................................................. 17 1.4 Structure of the Dissertation ....................................................................................... 26 Chapter Two: Review of Literature ........................................................................................ 29 2.1 Introduction: Contingent Compensation Schemes in the UK ...................................... 29 2.1.1 Reward for Performance: The Principal-Agent Theory ......................................... 30 2.1.2 Compensation Models and Company Performance: Inconclusive Results........... 34 2.2 The Long Term Incentive Plan ...................................................................................... 37 2.2.1 The Design of Long Term Incentive Plans ............................................................. 38 2.2.2 The Historical Development of Long Term Incentive Plan Usage in the UK ......... 40 2.2 Theoretical Frameworks for the Diffusion of Practices ............................................... 43 2.3 LTIPs as an Organisational Practice: Explanatory Models of Diffusion and Institutionalisation ............................................................................................................. 44 2.3.1 The Rational Account ............................................................................................ 46 2.3.2. The Social Account ............................................................................................... 48 2.3.2 (i) Social Accounts and the Rapid Diffusion of Organisational Practices .......... 49 2.3.2.(ii) (a) Perception of Similarity ...................................................................... 49 2.3.2.(ii) (b) Theorisation ....................................................................................... 51 2.4 Institution Theory: Explaining the Adoption of Organisational Forms and Practice ... 54 2.4.1 Institution Theory.................................................................................................. 55 2.4.2 Institution Theory as a Foil to Rational-Economic Explanation ............................ 58 2.4.2 (i) The Decoupling of Policy and Practice .......................................................... 59 2.4.2 (ii) Process Studies of Diffusion Over Time ....................................................... 60 2.4.3. Limitations in the Formulation of Traditional Institution Theory ........................ 62 2.4.3 (i) Ambiguity in the Conceptualisational of an Institution ................................ 62 2.4.3 (ii) The Property and Process Conflict ............................................................... 63 2.4.3 (iii) The Existence of Multiple Institutional Environments ................................ 65 7 2.4.3 (iv) The Conflation of Diffusion with Institutionalisation .................................. 66 2.5 The Linguistic Turn in Institution Theory ..................................................................... 68 2.5.1. Organisations as Interpretive Systems ................................................................ 68 2.5.2. The Linguistic Turn ............................................................................................... 69 2.6 Rhetorical Institutionalism ........................................................................................... 72 2.7.1 Process, Rhetoric and Changing Argument Structures ......................................... 73 2.7.2 Rhetorical Institutionalism: A Return to Fundamentals ....................................... 77 2.8 Conclusion: The Emergent Research Objectives .......................................................... 79 2.8.1 Research Objective One (RO1): ............................................................................. 79 To reconstruct the complex, discursive, constructive micro-processes informing the diffusion and institutionalisation of LTIPs in the UK 1992-2014 .................................... 79 2.8.2. Research Objective Two (RO2): ........................................................................... 80 To disclose the role of discursive social action in the justification of LTIPs as a form of executive remuneration ................................................................................................. 80 2.8.3 Research Objective Three (RO3): .......................................................................... 81 To examine the relationship between multiple rational myths, cultural templates and social endoxa and discourse within the LTIP context .................................................... 81 2.8.4. Research Objective Four (RO4): ........................................................................... 81 To explore the process by which elements of social context are embodied in discourse and practice ................................................................................................................... 81 Chapter Three: Methodology ................................................................................................ 83 3.1 Introduction ................................................................................................................