Theoretical Foundations of Governance and Executive Compensation in Bay Area Benefit Corporations

Profit maximation has largely prevailed as the foundation for corporate mission and the design of executive compensation structures. More recently, with the combination of profit and non-profit paradigms within a single hybrid entity, these lines are blurred when the stakeholder perspective and dual mission are incorporated. The purpose of this study was to examine the alignment between executive compensation metrics and dual mission and the governance structures and corporate perspectives implicit in the process of establishing and monitoring executive performance. Elements of stakeholder theory, shared value, behavioral agency theory, and goal framing theory were foundational to research and development of a theory utilizing the grounded theory methodology. Face-to-face purposeful interviews with nine CEOs and board directors provided new insights into the governance processes, structures, and perspectives of executive compensation in five benefit corporations in the Bay Area. Using focused coding processes to analyze data, a theory of cohesive purpose emerged. The foundation of this theory is that benefit corporations continue to utilize financial metrics aligned with strategic initiatives and financial performance to incentivize executives. Simultaneously, these organizations deeply embrace social metrics relative to their strategic initiatives to drive culture and maintain a sense of purpose beyond the goal of profitability. Alignment occurs when the organization has a clear mission incorporating both social and financial goals. The theory of cohesive purpose may enable leaders to begin to understand a new model of governance, and that compensation and social and financial performance can be viewed more collaboratively within an organization to achieve paradoxical goals.