How symbolic remuneration contributes to the legitimacy of the company: An institutional explanation

Abstract

This research analyzes whether variable compensation is designed as an economically rational incentive to increase organizational performance, or whether it also responds to other factors such as the search for legitimacy. A case study demonstrates how the design of the variable compensation system, at both managerial and lower levels, takes into account the company's adoption of popular management practices that increase its legitimacy but not necessarily its performance.The results show that,in the design of their compensation policies, organizations do not always seek financial objectives, as agency theory maintains, but often have other social objectives such as the search for legitimacy, as institutional theory suggests. The management of incentives not only is used to align the interests of principal and agent, but also has a symbolic character, insofar as it signals that the company belongs to a particular social context.