Sustainability-oriented targets in executive compensation – symbolic measures or significant catalyst for a sustainable transition?

Alexander Hofer, Ewald Aschauer and Patrick Velte

Qualitative Research in Accounting & Management, 2024, vol. 21, issue 5, 465-493

Abstract: Purpose - This study aims to analyse the motivations and underlying assumptions of decision makers driving the adoption of sustainability-oriented targets in executive compensation (SCTs) to better understand SCTs’ impact on sustainability performance. Design/methodology/approach - Through a qualitative approach, 15 in-depth interviews are conducted in a two-tier governance setting. Participants include management and supervisory board members, compensation consultants and other stakeholders involved in proxy voting. Findings - SCT implementation is primarily determined by meeting shareholders’ expectations rather than those of other stakeholders. Decision makers react in a differentiated way to increased expectations by implementing either primarily symbolic or substantive measures and encounter different implementation challenges like insufficient data quality and a lack of experience within supervisory boards, both of which potentially contribute to decoupling. Research limitations/implications - The study offers valuable insights for companies in designing SCTs and emphasises the significance of addressing decoupling to effectively enhance sustainability performance through SCTs and provides a foundation for future studies aimed at analysing this phenomenon. Originality/value - Using a neo-institutional theory lens, this study marks one of the first interview-based investigations to distinguish between symbolic and substantial SCTs. It delves deeply into the role of decoupling and the associated challenges, offering fresh perspectives within the under-researched framework of a two-tier corporate governance structure. Moreover, this study aims to meticulously capture the real-world design practices and implementation processes of SCTs through experts, an aspect that was emphasised as a limitation in previous studies.

Keywords: Executive compensation; Sustainable corporate governance; Neo-institutional theory; Decoupling; Legitimacy (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:qrampp:qram-06-2023-0105

DOI: 10.1108/QRAM-06-2023-0105

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