Industry Categories and the Politics of the Comparable Firm in CEO Compensation
Journal article by Joseph F. Porac, James B. Wade, Timothy G. Pollock; Administrative Science Quarterly, Vol. 44, 1999
Journal Article Excerpt
Industry categories and the politics of the comparable firm in CEO compensation. by Joseph F. Porac , James B. Wade , Timothy G. Pollock Organizations are complex social configurations that can be categorized in many ways. The query, "What kind of organization is this?" has many different answers depending on the context and descriptive purpose of the questioner. Research has shown, however, that certain categorizations diffuse through organizational fields in the form of collectively understood organizational taxonomies and classifications (e.g., Porac and Thomas, 1990, 1994; Reger and Huff, 1993; Abrahamson and Fombrun, 1994; Porac et al., 1995; Lant and Baum, 1995). These taken-for-granted classifications provide a commonsense nomenclature for describing organizational variation and help to make organizational communities sensible and coherent to the actors involved. Thus, for example, when General Motors is defined as an "automobile manufacturer," the company is immediately situated within the competitive context of other similarly categorized firms, such as Ford, Honda, and BMW. Moreover, this category imputes many capabilities, products, and attributes to General Motors and thus provides observers with an interpretive frame within which the activities of the company can be described and understood. Research on the categorical structure of organizational fields is one outcropping of the general cognitive turn that has been evident over the last decade in the study of interorganizational relationships (DiMaggio and Powell, 1991; Scott, 1995). Cognitive approaches to organizational fields are marked by their emphasis on the importance of social and cultural knowledge in shaping the intersubjective context for organizational action. This emphasis has led some organizational scholars to raise concerns that other aspects of organization-environment relationships, such as power, politics, values, interest seeking, and strategic cooptation, are being overlooked or dismissed by researchers exploring the nature and influence of socially constructed belief systems (e.g., DiMaggio, 1988; Oliver, 1991; Hirsch, 1997; Hirsch and Lounsbury, 1997). Most recently, for example, Hirsch (1997: 1718) argued that cognitive researchers have one-sidedly viewed organizations as "passive collection points" for imposed intersubjective meanings rather than as autonomous agents who "actively negotiate or co-opt elements of their environments." Echoing these sentiments, Hirsch and Lounsbury (1997: 415) maintained that organizations are not simply "cultural dopes" that follow taken-for-granted scripts with little awareness but, rather, that they consciously shape and manage their intersubjective worlds in the service of their own political interests. Hirsch and Lounsbury made a strong plea for empirical research on the micro-processes that connect the political with the cognitive bases of organizational fields. In the case of research on organizational categories, these criticisms are well founded. Past research on the categorical structure of organizational fields has been motivated by the premise that organizational categories are abstract and value-free representations of organizational forms that deterministically impose their structure on interorganizational relationships (e.g., Porac et al., 1995). But cognitive science researchers who have studied the micro-structure of conceptual categories have concluded that categorical knowledge is inherently open-ended and subject to interest-driven manipulations (e.g., Barsalou, 1987). At the organizational level, these manipulations stem from the fact that many organizational categories are laced with considerable political capital. As Gioia and Thomas (1996) noted, how organizations are categorized, by themselves and others, has direct consequences for their ability to acquire resources, mobilize commitment to their strategic agenda, and maintain or enhance their legitimacy in the eyes of stakeholders. The quest for legitimacy is often a search for the "right" group of other organizations against which the focal organization can be compared (Elsbach and Kramer, 1996). Organizations thus have a real stake in the categories that are used to describe their activities, and strategic action must involve a sensitivity to, and a purposeful manipulation of, the categorical representations that give meaning to organizational fields.Despite the political implications of many organizational categories, however, very little research has explored how politics and categorical knowledge intertwine in the course of organizational action. Our study addresses this gap in the literature by investigating the politics of organizational categories in one very public and contentious organizational context. Specifically, we investigate how corporate boards define comparable firms for the purpose of evaluating managerial performance. Managerial ability is difficult to assess given the complex causes of organizational outcomes (e.g., Bok, 1993). Holmstrom (1982) suggested that this ambiguity requires owners, or their representatives, to factor out performance variance that can be attributed to environmental variables that have similar effects on comparable firms. To decipher the unique contributions of management to the success or failure of a company, performance comparisons must be made with comparable firms facing similar business ... |
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