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

13 Pages Posted: 23 Oct 2004

See all articles by Ruth Bender

Ruth Bender

Cranfield School of Management

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

Bender, Ruth, Why Do Companies Use Performance-Related Pay for Their Executive Directors?. Available at SSRN: https://ssrn.com/abstract=608438

Ruth Bender (Contact Author)

Cranfield School of Management ( email )

Cranfield MK43 OA1
United Kingdom
+44 (0)1234751122 (Phone)
+44 (0)1234751806 (Fax)

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