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

Abstract

Purpose

Drawing 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/approach

A 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.

Findings

Tensions 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 implications

There 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/value

Application 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.

Citation

Perkins, S.J. and Shortland, S. (2023), "Do executive remuneration decision-makers know what's going on? The gap between independence and institutional contexts", Journal of Organizational Effectiveness: People and Performance, Vol. 10 No. 3, pp. 413-436. https://doi.org/10.1108/JOEPP-08-2022-0219