Environmental, societal and governance metrics and the outcomes of the underlying performative processes of Chief Executive Officer pay
Creators: name: Blair, Chris
Publisher: name: Lancaster University
Year: 2024

description: My motivation for this research was impassioned by interest in the
 performativity of the underlying
 
 processes that drive CEO pay through my job of running a consultancy on
 global governance and
 
 executive remuneration for the past 24 years The performativity of CEO pay
 refers to the idea that
 
 the level of pay for CEOs, particularly at large publicly traded
 companies, is determined in part by
 
 what other CEOs are paid a complex phenomenon that is driven by social
 norms, competitive
 
 pressures, and the actions of compensation committees and boards of
 directors. A recent study,
 
 published in the Journal of Financial Economics in 2020, f ound that the
 pay of CEOs at S&amp;P 500
 
 companies is positively associated with the pay of CEOs at peer companies,
 and that this
 
 relationship is stronger for CEOs with stronger performance. The research
 suggest s that this is due
 
 to a peer performance effect in which directors look to the pay of other
 CEOs whose companies
 
 have similar performance when setting pay for their own CEO. To complicate
 matters, w ider society
 
 has demanded more sustainable and stakeholder centric practices which has
 resulted in the
 
 introduction of non financial measures in the CEO scorecard
 
 The rapid emergence and development of non financial measures covering
 environment, social and
 
 governance ( factors has sparked debate on how corporate performance
 should determine the
 
 financ ial reward of Chief Executive Officers’ ( taking these new criteria
 into account Societal
 
 pressure has resulted in underlying structural changes relat ed to ESG
 performance in the globe’s
 
 largest companies, bringing into sharp relief the complex calculative
 processes ( 1988) used
 
 to reward past, current, and future CEO financial rewards. These
 calculative processes, however,
 
 remain largely empirically under explored and under theori s ed. What
 follows seeks to r ectify this
 
 imbalance revealing the tendency of remuneration committees to deploy
 calculative processes to
 
 perform, shape and format executive reward rather than merely observing it
 (c. Callon, 1988: 2).
 
 We observe how long standing debates over the ade quacy of the conceptual
 framework, Agency
 
 Theory traditionally used to unite the interests of shareholders ( CEOs (
 and
 
 wider stakeholders have been reignited by the advent of ESGs and their
 allocation to executive
 
 reward. For all th e ESG related rhetoric used by globally significant
 firms, analysis reveals it is
 
 shareholder value maximisation that statistically drives the allocation of
 reward, with ESG related
 
 factors pushed firmly further down the list of priorities. Using an origin
 al two panel primary data set
 
 comprising the remuneration plans of 517 of the globe’s largest firms, we
 reveal the efficacy of
 
 ‘Barnesian performativity’ that arises when the effects of using a theory
 bring social reality closer to
 
 the assumptions or predi ctions of that theory As a result, the theory
 becomes self fulfilling. (
 
 1983; Mackenzie, 2006: 19; Callon, 1998; Latour, 1987). We map and unpack
 the performativity of
 
 Agency Theory on three fronts. Firstly we theorise how by the introduction
 of specific felicity
 
 conditions, ESG factors can be more closely and, critically, better
 aligned to outcomes generated by
 
 the underlying performative processes of CEO reward. Secondly, we
 empirically examine and establish
 
 how the outcomes of the underlying p rocesses of CEO reward (remuneration
 committees,
 
 annual financial statements and integrated reports, remuneration
 consulting, articles, books, and
 
 academic research) focuses CEO near term priorities on short term
 financial goals thereby creating
 
 a tension between CEO incentives and the adoption of ESG factors. Third ly
 we seek to integrate a
 
 suite of appropriate ESG metrics into the outcomes of the underlying
 performative processes of CEO
 
 pay, using specific non financial short term incentives that have bee n
 determined by ESG factors
 
 that limit risk and ensure that long term value creation and
 sustainability targets of all stakeholders
 
 are met.