Sense-Making in Compensation Committees: A Cultural Theory Perspective

Abstract

Drawing on Mary Douglas’s cultural theory, our research analyzes the cultural schemes or biases mobilized by compensation committee (CC) members, in the context of public companies, when making sense of their committee’s work. Relying on semi-structured interviews mostly conducted with CC members in Canada, our analysis brings to the fore the production of moral and rational comfort within the boundaries of the individualistic and hierarchical culture. Under an individualistic bias, the compensation market is seen as natural, providing conditions of possibility that serve to establish fair compensation through the creation and enforcement of contracts. Under a hierarchic bias which emphasizes principles of objectivity and measurability, members of CCs tend to conceive the design of compensation policies as an act of expertise, relying extensively on consultants and measurement techniques to determine acceptable reward boundaries. Not only does our paper contribute to corporate governance literature by providing insight into a central aspect of CCs, that is to say CC members’ ways of thinking and doing, but the juxtaposition of cultural theory with CC empirics provides us with the opportunity to reflect and theorize on the issue of cultural change.