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Adoption and Coverage of Performance‐Related Pay during Institutional Change: An Integration of Institutional and Agency Theories
Author(s) -
Kang SungChoon,
Yanadori Yoshio
Publication year - 2011
Publication title -
journal of management studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.398
H-Index - 184
eISSN - 1467-6486
pISSN - 0022-2380
DOI - 10.1111/j.1467-6486.2010.00986.x
Subject(s) - remuneration , legitimacy , agency (philosophy) , politics , institutional theory , sample (material) , principal–agent problem , public economics , institutionalism , business , empirical research , early adopter , economics , public relations , marketing , corporate governance , finance , sociology , political science , management , social science , chemistry , philosophy , chromatography , epistemology , law
Whether or not to adopt and how extensively to use a newly legitimized practice are discrete decisions made by firms undergoing institutional change. The aim of this paper is to identify the distinct effects of economic, social, and political factors on the adoption of performance‐related pay practices and their coverage (i.e. the proportion of employees covered by the practices) by integrating institutional and agency theories. An empirical analysis is performed with a unique sample of Korean firms that experienced the East Asian financial crisis of 1997. The results show that while performance‐related pay adoption was influenced by economic and social factors, performance‐related pay coverage was related to political factors as well as economic and social factors. This finding suggests that while firms adopt performance‐related pay practices in search of legitimacy, they do not blindly imitate such practices but rather proactively adapt them based on economic efficiency considerations. This study makes valuable contributions to research on institutionalism and remuneration by empirically identifying the conditions under which a pay practice adopted for social legitimacy fits or fails to fit the economic needs of the adopters.