Executive compensation and non-financial risk: An empirical examination

Corporate litigation and executive turnover

“…The estimated coefficient of ENVt is 0.136, indicating an average increase of 13.6% in CEO bonus and salary following the filing of any environmental lawsuit against the company. This is consistent with the findings of Campbell et al (2007), who document that firms with poor environmental performance tend to over-compensate their executive officers, to make up for their personal risks of being prosecuted for environmental violations. The results here suggest that companies facing environmental lawsuits compensate their CEOs for dealing with the lawsuits.…”

“…Alleged victims in environmental lawsuit filings (for instance, affected local residents) and IP disputes (usually competitors) wield no such direct contractual power to impose pressure on the accused companies. Second, Campbell et al (2007) document that companies with inferior environmental performance tend to over-compensate their CEOs, to make up for the personal risk of being prosecuted for the companies' environmental wrongdoing. The observed decreased likelihood of CEO turnover appears consistent with the findings of Campbell et al (2007).…”

“…Second, Campbell et al (2007) document that companies with inferior environmental performance tend to over-compensate their CEOs, to make up for the personal risk of being prosecuted for the companies' environmental wrongdoing. The observed decreased likelihood of CEO turnover appears consistent with the findings of Campbell et al (2007). The higher retention rate may represent boards' attempts to compensate CEOs for the trouble of defending the lawsuits.…”

Accruals quality and the incentive contracting role of earnings

“…The inferences do not change when CEO fixed effects are included. 11 Besides earnings and returns (the two aggregate financial measure), firms also use additional performance measures such as non-financial indicators, e.g., product quality, customer satisfaction, and environmental performance (Ittner et al, 1997;Campbell et al, 2007;Cadman et al, 2010). While I predict that firms shift the weight on earnings based on accruals quality, I am not able to identify specific performance measures that firms use in their compensation plans in addition to earnings and returns for two reasons.…”

Incentive Plans, Pay-for-non-financial Performance and ESG Criteria: Evidence from the European Banking Sector

“…The main results appear partial. On the one hand, they highlight how environmental performance is a decisive factor in managerial remuneration (Campbell et al, 2007), confirming a positive relationship between the use of environmental standards, as part of Top Management's remuneration, and the firm's environmental performance. On the other hand, however, this connection is verified only for a few category of managers (Russo and Harrison, 2005), or only for some environmental standards (Cordeiro and Sarkis, 2008).…”