The social construction of executive pay: governance processes and institutional isomorphism

Abstract

PurposeThe purpose of this paper is to explore the social construction of executive pay in the UK via an examination of narratives drawn from the social actors on the front-line of Key Management Personnel (KMP) pay determination.Design/methodology/approachThe authors' qualitative research draws upon in-depth interviews with non-executive directors (NEDs) serving on remuneration committees, institutional investors, and independent pay consultants.FindingsRegulation, market pricing and risk mitigation together with the social processes inherent within discharging corporate governance responsibilities create a status-quo-preserving isomorphic effect, restricting context-sensitive approaches to KMP pay determination.Practical implicationsThe paper informs action by company directors, investors and policy makers to address KMP pay controversies, building shared accountability amongst decision-makers focussed on more strategic context-aligned processes and outcomes.Originality/valueThe authors' analysis illustrates how institutional isomorphism can be applied to analyse social actors' interpretations within KMP pay decision-making. The authors show that normative, coercive and mimetic isomorphic forces must be applied in dynamic interaction to extend the explanatory power of institutional isomorphism through the creation of a “No-Come-In” effect in respect of contemporary KMP pay determination settings.