Executive compensation and sustainable business practices: The moderating role of sustainability‐based compensation

Abstract

This study seeks to contribute to the extant business strategy and the environment literature by investigating the effect of CEO pay and executive compensation (EC) on sustainable business practice (SBPs). It also distinctively ascertains whether the payfor-sustainability sensitivity (PSS) is reinforced in firms with sustainability-based compensation (SBC) policy. Using a sample of 262 UK listed firms from 2009 to 2018, our findings are threefold. First, the findings reveal that both CEO pay and EC variables have positive effect on all SBP measures, except CO 2 reduction performance where the link is negative. Second, the study shows that the PSS is reinforced for firms that implement SBC policy. Finally, we detect that both the PSS and the moderation effect of SBC on the PSS are higher in the symbolic construct of SBPs than the actual measures. The results support insights drawn from neo-institutional theory. The findings have key implications for regulators and policy makers.

Executive compensation, environmental performance, and sustainable banking: The moderating effect of governance mechanisms

“…Global efforts aimed at protecting the environment and promoting economic viability and social equity through the design and the implementation of corporate sustainable policies that have been intensified over the past 20 years (Adu et al, 2021;Brooks & Schopohl, 2020;Haque & Ntim, 2020;Liute & De Giacomo, 2021).…”

“…Global efforts aimed at protecting the environment and promoting economic viability and social equity through the design and the implementation of corporate sustainable policies that have been intensified over the past 20 years (Adu et al, 2021; Brooks & Schopohl, 2020; Haque & Ntim, 2020; Liute & De Giacomo, 2021). With growing economic challenges associated with issues related to climate change and social inclusion, there is a heightened interest on identifying how banks make long‐term decisions that explain these topical global concerns (Alessi et al, 2021; Emerton & Jones, 2019).…”

Sustainable banking initiatives, environmental disclosure and financial performance: The moderating impact of corporate governance mechanisms

“…For instance, policymakers and various governments are increasingly exhibiting greater concern about the risks of a severe climate crisis on the environment. In response to these challenges, national governments and supra‐national bodies are displaying growing concern in attending to these risks by instituting a number of sustainability policies (Adu et al, 2021; Baboukardos, 2018; Marrucci et al, 2022). The UN has a well‐defined sustainable development policy centred on 17 broad ‘Sustainable Development Goals’ (SDGs), with 2030 set as the time limit for achieving them.…”

“…For example, for the banking sector to continue to play a pivotal role in the 21st century, the sector has to demonstrate how it is meeting society's changing needs and demands (Adu, 2021; UN Global compact, 2020; UNEP‐FI, 2020). Arguably, one way by which the banking sector may achieve this is through sustainable banking or responsible banking initiatives (Adu et al, 2021; UN Global compact, 2020).…”

“…Adu et al (2021) andHaque and Ntim (2020), and to address the first research question (i.e., whether bank-level CGDI influences SBD [Hypothesis 1]), the model below is proposed and tested using the ordinary least square (OLS) regression technique initially.…”