Green or Greed? An Alternative Look at CEO Compensation and Corporate Environmental Commitment

Claude Francoeur (claude.francoeur@hec.ca), Andrea Melis, Silvia Gaia (sgaia@essex.ac.uk) and Simone Aresu (simonearesu@unica.it)
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Claude Francoeur: HEC Montréal
Silvia Gaia: University of Essex
Simone Aresu: University of Cagliari

Journal of Business Ethics, 2017, vol. 140, issue 3, No 5, 439-453

Abstract: Abstract This study relies on environmental stewardship, a stakeholder-enlarged view of stewardship theory, and institutional theory to analyze the relationship between CEO compensation and firms’ environmental commitment in a worldwide sample of 520 large listed firms. Our findings show that environment friendly firms pay their CEOs less total compensation and rely less on incentive-based compensation than environment careless firms. This negative relationship is stronger in institutional contexts where national environmental regulations are weaker. Our findings have important theoretical meaning and practical implications. Results show that CEOs do not necessarily act opportunistically; rather some of them may be willing to act as stewards of the natural environment and accept a lower, less incentive-based compensation from environment friendly firms. This study also provides evidence of the important influence of the institutional context in setting-up CEO compensation as the relationship is stronger when national environmental regulations are weaker. Our findings question the universal validity of agency theory in explaining CEO compensation. Compensation based on pecuniary incentives might be less indicated to motivate CEOs who feel rewarded by playing a stewardship role for environment friendly firms. When designing compensation for CEOs, compensation committees and external compensation advisors should consider psychological and institutional factors that might affect CEO motivation.

Keywords: CEO compensation; Corporate social performance; Corporate social responsibility; Environmental commitment; Environmental regulations; Stewardship theory (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (31)

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DOI: 10.1007/s10551-015-2674-5

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