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Why Do Companies Use Performance‐Related Pay for Their Executive Directors?

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  • Ruth Bender

Abstract

This paper sets out the results of interview‐based research to determine why companies use performance‐related pay. The findings indicate that many companies adopt this structure despite a belief that the money does not motivate executives. Reasons related in part to best practice in human resource management: pay structures were designed to attract and retain executives with the potential of large earnings; to focus their efforts in the direction agreed by the board; and to demonstrate fairness. Importantly, the variable pay was seen as a symbol of the director's success, both internally and to his or her peers in other companies. Finally, and significantly, an institutional theory explanation was given: companies used performance‐related pay because their peers did, and because that legitimised them in the eyes of the establishment.

Suggested Citation

  • Ruth Bender, 2004. "Why Do Companies Use Performance‐Related Pay for Their Executive Directors?," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(4), pages 521-533, October.
    • Handle: RePEc:bla:corgov:v:12:y:2004:i:4:p:521-533
    DOI: 10.1111/j.1467-8683.2004.00391.x
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    Cited by:

    1. Sikka, Prem, 2010. "Smoke and mirrors: Corporate social responsibility and tax avoidance," Accounting forum, Elsevier, vol. 34(3), pages 153-168.
    2. Ruth Bender & Lance Moir, 2006. "Does ‘Best Practice’ in Setting Executive Pay in the UK Encourage ‘Good’ Behaviour?," Journal of Business Ethics, Springer, vol. 67(1), pages 75-91, August.
    3. Walker, James & Wood, Geoff & Brewster, Chris & Beleska-Spasova, Elena, 2018. "Context, market economies and MNEs: The example of financial incentivization," International Business Review, Elsevier, vol. 27(1), pages 21-33.
    4. Mallin, Chris & Melis, Andrea & Gaia, Silvia, 2015. "The remuneration of independent directors in the UK and Italy: An empirical analysis based on agency theory," International Business Review, Elsevier, vol. 24(2), pages 175-186.
    5. James J. Cordeiro & Rajaram Veliyath & Jane B. Romal, 2007. "Moderators of the Relationship Between Director Stock‐Based Compensation and Firm Performance," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1384-1393, November.
    6. Alcindo Mendes & Rogério João Lunkes & Leonardo Flach & Silvana Dalmutt Kruger, 2017. "The influence of remuneration on the behavior of hospital employees in Brazil," Contaduría y Administración, Accounting and Management, vol. 62(1), pages 207-221, Enero-Mar.
    7. Brian G. M. Main & Calvin Jackson & John Pymm & Vicky Wright, 2008. "The Remuneration Committee and Strategic Human Resource Management," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(3), pages 225-238, May.

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