This research analyzes whether variable compensation is designed as an economically rational incentive to increase organizational performance, or whether it also responds to other factors such as the search for legitimacy. A case study demonstrates how the design of the variable compensation system, at both managerial and lower levels, takes into account the company's adoption of popular management practices that increase its legitimacy but not necessarily its performance.The results show that,in the design of their compensation policies, organizations do not always seek financial objectives, as agency theory maintains, but often have other social objectives such as the search for legitimacy, as institutional theory suggests. The management of incentives not only is used to align the interests of principal and agent, but also has a symbolic character, insofar as it signals that the company belongs to a particular social context.
Abrahamson, E.Management fashion . Academy of Management Review, 1996, 21, 254–286 .
2.
Arndt, M. & Bigelow, B.Presenting structural innovation in an institutional environment: Hospitals' use of impression management . Administrative Science Quarterly, 2000, 45(3), 494–522 .
3.
Barkema, H. & Gómez-Mejia, L.Managerial compensation and firm performance: A general research framework . Academy of Management Journal, 1998, 41, 135–145 .
4.
Barkema, H. & Pennings, J.Top management pay: Impact of overt and covert power . Organization Studies, 1998, 19(6), 975–1004 .
5.
Barley, S. & Kunda, G.Design and devotion: Surges of rational and normative ideologies of control in managerial discourse . Administrative Science Quarterly, 1992, 37, 363–399 .
6.
Barringer, M. & Milkovich, G.A theoretical exploration of the adoption and design of flexible benefit plans: A case of human resource innovation . Academy of Management Review, 1998, 23(2), 305–324 .
7.
Beckert, J.Agency , entrepreneurs , and institutional change . The role of strategic choice and institutionalized practices in organizations . Organization Studies, 1999, 5(5), 777–799 .
8.
Bender, R.How executive directors' remuneration is determined in two FTSE 350 utilities . Corporate Governance, 2003, 11(3), 206–217 .
9.
Bender, R.Why do companies use performance-related pay for their executive directors?Corporate Governance, 2004, 12(4), 521-521 .
10.
Cole, R.Managing quality fads: How American business learned to play the quality game. New York: Oxford University Press , 1999.
11.
Davis, G.Agents without principles? The spread of the poison pill through the intercorporate network . Administrative Science Quarterly, 1991, 36, 583–613 .
12.
DiMaggio, P.Interest and agency in institutional theory. In L. Zucker (Ed.), Institutional patterns and organizations: Culture and environment. Cambridge, MA: Ballinger , 1988, pp. 3–23.
13.
DiMaggio, P.Constructing an organizational field as a professional project: U.S. art museums, 1920–1940. In W. Powell & P. DiMaggio (Eds), The new institutionalism in organizational analysis. Chicago, IL: University of Chicago Press , 1991, pp. 1–40.
14.
DiMaggio, P. & Powell, W.The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields . American Sociological Review, 1983, 35, 147–160 .
15.
Eisenhardt, K.Agency and institutional theory explanations. The case of retail sales compensation . Academy of Management Journal, 1988, 31(3), 488–511 .
16.
Eisenhardt, K.Agency theory: An assessment and review . Academy of Management Review, 1989, 14(1), 57–74 .
17.
Eisenhardt, K.Building theories from case study. In G. Huber & A. Van de Ven (Eds), Longitudinal field research methods. Studying processes of organizational change. Thousand Oaks, CA: Sage , 1995, pp. 65–90.
18.
Elsbach, K. & Sutton, R.Acquiring organizational legitimacy through illegitimate actions: A marriage of institutional and impression management theories . Academy of Management Journal, 1992, 35(4), 699–738 .
19.
Erbes-Sequin, S.Economic and institutional conditions for successful employee action: Ten cases in the French textile industry . Organization Studies, 1981, 2(1), 73-73 .
20.
Fama, E.Agency problems and the theory of the firm . Journal of Political Economy, 1980, 88, 288–307 .
21.
Fama, E. & Jensen, M.Separation of ownership and control . Journal of Law and Economics, 1983, 26, 301–325 .
22.
Finkelstein, S. & Hambrick, D.Chief executive compensation: A synthesis and reconciliation . Strategic Management Journal, 1989, 9, 543–558 .
23.
Fombrum, C. & Shanley, M.What's in a name? Reputation building and corporate strategy . Academy of Management Journal, 1990, 33(2), 233–258 .
24.
Gómez-Mejia, L.R. & Wiseman, R.Reframing executive compensation: An assessment and outlook . Journal of Management, 1997, 23(3), 291–374 .
25.
Gómez-Mejia, L. , Tosi, H. & Hinkin, T.Managerial control, performance, and executive compensation . Academy of Management Journal, 1987, 30(1), 51–70 .
26.
Goodstein, J.Institutional pressures and strategic responsiveness: Employer involvement in work–family issues . Academy of Management Journal, 1994, 37(2), 350–383 .
27.
Hambrick, D. & Finkelstein, S.Managerial discretion: A bridge between polar views of organizational outcomes. In L. Cummings & B. Staw (Eds), Research in organizational behaviour 9. Greenwich, CT: JAI Press , 1987, pp. 369–406.
28.
Haunschild, P. & Miner, A.Modes of interoganizational imitation: The effects of outcome salience and uncertainty . Administrative Science Quarterly, 1997, 42, 472–500 .
29.
Haveman, H.Follow the leader: Mimetic isomorphism and entry into new markets . Administrative Science Quarterly, 1993, 38, 593–627 .
30.
Hoskisson, R. , Hitt, M. , Turk, T. & Tyler, B.Balancing corporate strategy and executive compensation: Agency theory and corporate governance. In G. Gerris & K. Rowland (Eds), Research in personnel and human resources management 7. Greenwich, CT: JAI Press , 1989, pp. 25–57.
31.
Jensen, M. & Meckling, W.Theory of the firm: Managerial behavior, agency costs, and ownership structure . Journal of Financial Economics, 1976, 3, 305–360 .
32.
Kosnik, R. & Bettenhausen, K.Agency theory and the motivational effect of management compensation . Group & Organization Studies, 1992, 17(3), 209–330 .
33.
Lazear, E.Performance pay and productivity . American Economic Review, 2000, 90, 1346–1361 .
34.
Leonard-Barton, D.A dual methodology for case studies: Synergistic use of a longitudinal single site with replicated multiple sites . Organization Science, 1990, 1(3), 248–266 .
35.
Meyer, J. & Rowan, B.Institutionalized organizations: Formal structure as myth and ceremony . American Journal of Sociology, 1977, 83, 340–363 .
36.
Meyer, J. & Rowan, B.The structure of educational organizations. In J.W. Meyer & W.R. Scott (Eds), Organizational environments: Ritual and rationality. Beverly Hills, CA: Sage , 1983, pp. 71–97.
37.
Meyer, J. & Rowan, B.Institutionalized organizations: Formal structure as myth and ceremony. In W. Powell and P. DiMaggio (eds.) The new institutionalism in organizational analysis, pp. 40–62. Chicago, IL: University of Chicago Press , 1991.
38.
Miller, J. , Wiseman, R. & Gómez-Mejia, L.The fit between CEO compensation design and firm risk . Academy of Management Journal, 2002, 45(4), 745–756 .
39.
Nilakant, V. & Hayagreeva, R.Agency theory and uncertainty in organizations: An evaluation . Organization Studies, 1994, 15(5), 649–673 .
40.
Oliver, C.Strategic responses to institutional processes . Academy of Management Review, 1991, 16(1), 145–179 .
41.
Oliver, C.The influence of institutional and task environment relationships on organizational performance: The Canadian construction industry . Journal of Management Studies, 1997, 34(1), 99–124 .
42.
Paauwe, J. & Boselie, P.Best practices... in spite of performance: Just a matter of imitation?International Journal of Human Resource Management, 2005, 16(6), 987–1003 .
43.
Palmer, D. , Jennings, P. & Zhou, X.Late adoption of the multidivisional form by large U.S. corporations: Institutional, political, and economic accounts . Administrative Science Quarterly, 1993, 38, 100–131 .
44.
Perrow, C.Complex organizations, 3rd edn.New York: Random House , 1986.
45.
Pfeffer, J.Organizaciones y teoría de la organización. Buenos Aires: El Ateneo , 1987.
46.
Pfeffer, J. & Sutton, R.The smart-talk trap . Harvard Business Review, 1999, 77(3), 134–142 .
47.
Scott, R.Institutions and organizations. Thousand Oaks, CA: Sage , 1995.
48.
Scott, R.Organizations. Ritual, natural and open systems. Englewood Cliffs, NJ: Prentice Hall International , 1998.
49.
Shaw, J. , Gupta, N. & Delery, J.Pay dispersion and workforce performance: Moderating effects of incentives and interdependence . Strategic Management Journal, 2002, 23(6), 491–513 .
50.
St-Onge, S. , Magnan, M. , Thorne, L. & Raymond, S.The effectiveness of stock option plans. A field investigation of senior executives . Journal of Management Inquiry, 2001, 10(3), 250–266 .
51.
Staw, B. & Epstein, L.What the bandwagon brings: Effects of popular management techniques on corporate performance, reputation, and CEO pay . Administrative Science Quarterly, 2000, 45(3), 523–556 .
52.
Suchman, M.Managing legitimacy: Strategic and institutional approaches . Academy of Management Review, 1995, 20(3), 571–610 .
53.
Wagner, J. & Gooding, R.Effects of societal trends on participation research . Administrative Science Quarterly, 1987, 32, 241–262 .
54.
Westphal, J. & Zajac, E.Substance and symbolism in CEOs' long-term incentive plans . Administrative Science Quarterly, 1994, 39, 367–390 .
55.
Westphal, J. & Zajac, E.The symbolic management of stockholders: Corporate governance reforms and shareholder reactions . Administrative Science Quarterly, 1998, 43, 127–153 .
56.
Westphal, J. & Zajac, E.Decoupling policy from practice: The case of stock repurchase programs . Administrative Science Quarterly, 2001, 46, 202–228 .
57.
Wright, P. , Mukherji, A. & Kroll, M.A reexamination of agency theory assumptions: Extensions and extrapolations . Journal of Socio-Econonomics, 2001, 30, 413–429 .
58.
Yin, R.Case study research: Design and methods, 2nd edn.Newbury Park, CA: Sage , 1984.
59.
Young, G. , Stedhay, Y. & Beekun, R.Boards of directors and the adoption of CEO performance evaluation process: Agency and institutional theory perspectives . Journal of Management Studies, 2000, 37(2), 277–295 .
60.
Zajac, E. & Westphal, J.Accounting for the explanation of CEO compensation: Substance and symbolism . Administrative Science Quarterly, 1995, 40, 283–308 .
61.
Zbaracki, M.The rhetoric and reality of total quality management . Administrative Science Quarterly, 1998, 43, 602–638 .
62.
Zucker, L.Institutional theories of organization . Annual Review of Sociology, 1987, 13, 443–464 .
