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.
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Notes
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
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(1)
Public reporting on environmental issues
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(2)
Public reporting externally verified
Principles and Policies
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(3)
Environmental policy
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(4)
Formal policy statement on green procurement
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(5)
Formal policy statement on use of certified forestry product
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(6)
Public position statement on transport and climate change
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(7)
Public position statement on energy mix
Management Systems
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(8)
Percentage of ISO 14,001 certified sites
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(9)
Targets and programs for environmental improvement of suppliers
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(10)
Targets and programs for CO2 eq emission reduction and/or energy consumption
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(11)
Targets and programs to increase the use of renewable energy
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(12)
Targets and programs to reduce air emissions
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(13)
Targets and programs to reduce hazardous waste generation
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(14)
Targets and programs to reduce non-hazardous waste generation
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(15)
Targets and programs to reduce discharge to water
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(16)
Targets and programs to reduce water consumption
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(17)
Targets and programs to reduce material consumption
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(18)
Targets and programs to phase out use of hazardous substances
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(19)
Targets and programs to phase out CFC’s/HCFC’s in refrigeration equipment
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(20)
Targets and programs to replace chlorine bleaching
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(21)
Targets and programs to increase percentage of certified pulp/wood operations
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(22)
Targets and programs to increase use of environmentally friendly paper
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(23)
Targets and programs to improve the environmental performance of fleet and transport
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(24)
Targets and programs to reduce emissions of transport means
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(25)
Targets and programs to reduce the noise characteristics of transport
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(26)
Targets and programs to phase out production of hazardous substances
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(27)
Targets and programs to reduce the energy consumption of products
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(28)
Targets and programs to reduce the impact of product at the end of the production cycle
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(29)
Targets and programs to reduce the environmental toxicity of product
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(30)
Targets and programs to reduce packaging materials
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(31)
Targets and programs to increase the sale of eco-labeled/organic products
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(32)
Targets and programs to reduce CO2 eq emissions of the fleet
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(33)
Programs that offer favorable financial conditions for environmentally friendly projects
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(34)
Programs to take into account environmental impact of products in investment decision
Performance
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(35)
Percentage of ISO 14,001 certified suppliers
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(36)
Data on CO2 eq emissions
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(37)
Data on renewable energy consumption
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(38)
Data on air emissions
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(39)
Data on hazardous waste generation
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(40)
Data on non-hazardous waste
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(41)
Data on discharge to water
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(42)
Data on oil spills
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(43)
Data on water consumption
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(44)
Data on material consumption
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(45)
Data on percentage of certified pulp or wood of total consumption/production
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(46)
Data on percentage of recycled fiber as raw material
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(47)
Percentage of FSC paper
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(48)
Percentage of recycled paper used
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(49)
Percentage of renewable energy sold
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(50)
Data on assets managed according to SRI criteria
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(51)
Data on total amount of environmental fines and penalties
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(52)
Total land disturbed and not yet rehabilitated
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(53)
Percentage of sales from eco-labeled/organic products
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(54)
Environmentally friendly construction materials
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(55)
Environmentally friendly building products
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(56)
Products beneficial to the environment
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(57)
Percentage of loans with detailed environmental examination
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(58)
Percentage of environmentally oriented loans
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(59)
Percentage of transactions with detailed environmental examination
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(60)
Percentage of transactions with high environmental benefits
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(61)
Percentage of investments in non-listed pioneer companies with high environmental benefits
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(62)
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
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DOI: https://doi.org/10.1007/s10551-015-2674-5