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This is the third in a series of papers examining different aspects of the CEO compensation debate. This Article will explore attempts by norms entrepreneurs to create or modify social norms. It argues that the relevant social norms are in a state of flux because of the work of norms entrepreneurs, whose efforts might reduce the need for legislative intervention. Several new norms like majority voting for board election, say on pay, smaller multiples for severance packages, and respect for shareholder activists may be emerging due to the work of norms entrepreneurs. Part II analyzes the rich literature on social norms to determine if there are models capable of application to better correlate executive compensation with performance. Despite several problems at the definitional level, it argues that the actions of constituencies relevant to the CEO pay debate might be explained by signaling, esteem, and expressive theories. Further, social norms theories neglecting internalization are deficient; corporate actors undertake self-improvement only when they internalize norms. Part III identifies the work of norms entrepreneurs in creating or changing norms pertaining to CEO compensation, and analyzes the reasons for their success. The examples considered demonstrate the effects of dynamic normative transformations on corporate actors and illustrate the contrast in behavioral changes accompanying resistance and acceptance of new norms. Part IV concludes that norm creation in corporate law is facilitated by the role of groups where membership benefits are dependent on reputation; that directors cannot tradeoff reputation like CEOs, making the deployment of reputational sanctions against them powerful; that behavioral change is more effective when there is norm internalization; and that norms entrepreneurs ought to focus on socializing relevant actors if they aspire to be successful in achieving normative change.

Changing Social Norms and CEO Pay: The Role of Norms Entrepreneurs