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Accounting for the Explanations of CEO Compensation: Substance and Symbolism
James D. Westphal and Edward J. Zajac, Administrative Science Quarterly, 40 (1995) 283-308

While current debates about CEO compensation have generally been dominated by economic and political perspectives on CEO/ board relations, we argue in this paper that CEO compensation may be driven by symbolic as well as substantive considerations. We develop an interdisciplinary theoretical framework to (1) explain why alternative explanations rooted in agency and human resource logics may be used to reduce ambiguity surrounding the adoption of new incentive plans for CEOs and (2) identify the possible structural (e.g., institutional, demographic, and economic), and interest-based (e. g., political) factors influencing the use of such explanations. We generate and test hypotheses predicting the alternative explanations for new long-term incentive plans using data taken from proxy statements over a 15-year period. The findings support the notion that explanations for CEO compensation reflect both substance and symbolism.

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