Exchange: corporate governance and executive remuneration: a contingency framework

By integrating organizational and institutional theories this paper develops a contingency approach to executive remuneration and assesses the effectiveness of this corporate governance factor in different organizational and institutional contexts. Most of the executive remuneration research focuses on the principal-agent framework and assumes a universal link between executive incentives and performance outcomes, but neglects to explore how the organization’s context and its institutional environments lead to variations in the effectiveness of this governance factor. In contrast to such ‘closed systems’ approach, we discuss a framework which examines executive compensation in terms of its organizational contexts, and potential complementarities/substitution effects between different corporate governance practices both on the firm’s and national levels. We also discuss the implications for different approaches to executive compensation policy such as ‘soft-law’ or ‘hard law’.