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.
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As opposed to ‘triple bottom line.’
At worst, as pointed out by Bebchuk and Fried (2003), the compensation process is dominated by the CEO’s interests. Boards do not engage in arms’ length negotiations with the CEO over compensation, because they lack the independence, adequate time, and easy access to accurate and unbiased information. Moreover, also board members who sit in the compensation committee have economic and social incentives to favor CEOs (e.g., Murphy 1999).
We used the interquartile range rule to identify outliers.
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Appendix: SiriPro—Environmental Commitment/Performance Index
Appendix: SiriPro—Environmental Commitment/Performance Index
Public Reports and Communications
Public reporting on environmental issues
Public reporting externally verified
Principles and Policies
Formal policy statement on green procurement
Formal policy statement on use of certified forestry product
Public position statement on transport and climate change
Public position statement on energy mix
Percentage of ISO 14,001 certified sites
Targets and programs for environmental improvement of suppliers
Targets and programs for CO2 eq emission reduction and/or energy consumption
Targets and programs to increase the use of renewable energy
Targets and programs to reduce air emissions
Targets and programs to reduce hazardous waste generation
Targets and programs to reduce non-hazardous waste generation
Targets and programs to reduce discharge to water
Targets and programs to reduce water consumption
Targets and programs to reduce material consumption
Targets and programs to phase out use of hazardous substances
Targets and programs to phase out CFC’s/HCFC’s in refrigeration equipment
Targets and programs to replace chlorine bleaching
Targets and programs to increase percentage of certified pulp/wood operations
Targets and programs to increase use of environmentally friendly paper
Targets and programs to improve the environmental performance of fleet and transport
Targets and programs to reduce emissions of transport means
Targets and programs to reduce the noise characteristics of transport
Targets and programs to phase out production of hazardous substances
Targets and programs to reduce the energy consumption of products
Targets and programs to reduce the impact of product at the end of the production cycle
Targets and programs to reduce the environmental toxicity of product
Targets and programs to reduce packaging materials
Targets and programs to increase the sale of eco-labeled/organic products
Targets and programs to reduce CO2 eq emissions of the fleet
Programs that offer favorable financial conditions for environmentally friendly projects
Programs to take into account environmental impact of products in investment decision
Percentage of ISO 14,001 certified suppliers
Data on CO2 eq emissions
Data on renewable energy consumption
Data on air emissions
Data on hazardous waste generation
Data on non-hazardous waste
Data on discharge to water
Data on oil spills
Data on water consumption
Data on material consumption
Data on percentage of certified pulp or wood of total consumption/production
Data on percentage of recycled fiber as raw material
Percentage of FSC paper
Percentage of recycled paper used
Percentage of renewable energy sold
Data on assets managed according to SRI criteria
Data on total amount of environmental fines and penalties
Total land disturbed and not yet rehabilitated
Percentage of sales from eco-labeled/organic products
Environmentally friendly construction materials
Environmentally friendly building products
Products beneficial to the environment
Percentage of loans with detailed environmental examination
Percentage of environmentally oriented loans
Percentage of transactions with detailed environmental examination
Percentage of transactions with high environmental benefits
Percentage of investments in non-listed pioneer companies with high environmental benefits
Percentage of premium volumes or number of policies with environmental incentives
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Francoeur, C., Melis, A., Gaia, S. et al. Green or Greed? An Alternative Look at CEO Compensation and Corporate Environmental Commitment. J Bus Ethics 140, 439–453 (2017). https://doi.org/10.1007/s10551-015-2674-5
- CEO compensation
- Corporate social performance
- Corporate social responsibility
- Environmental commitment
- Environmental regulations
- Stewardship theory