Pay for Talk: How the Use of Shareholder-Value Language Affects CEO Compensation
Journal of Management Studies · 2017 · Volume 54 · Issue 1
Abstract
The language that signals conformity to a prevailing norm can contribute to the appearance of managerial competency and organizational legitimacy. We argue that top corporate managers’ use of language that is congruent with a prevailing norm leads the boards of directors to evaluate the managers more favourably and to grant a higher level of compensation. We test this argument by analysing the letters to shareholders from 334 US firms and examine the CEOs’ expression of the shareholder value principle, which is a prevailing model of corporate governance in the USA. We found that the use of shareholder-value language is significantly related to a higher level of CEO compensation and that the effect of shareholder-value language is greater when shareholder activism is stronger.
Keywords
CEO compensation, shareholder letters, shareholder value, symbolic management
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