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Executive compensation, sustainable compensation policy, carbon performance and market value

Executive compensation, sustainable compensation policy, carbon performance and market value
Executive compensation, sustainable compensation policy, carbon performance and market value
We examine the interrelationships among executive compensation, environmental-social-governance-based (ESG) sustainable compensation policy, carbon performance and market value. Using one of the largest datasets to-date, consisting of 4,379 firm-year observations covering a period of 15 years (2002-2016) from 13 industrialised European countries and insights from neo-institutional theory (NIT), our findings are four-fold. First, our results suggest that process-oriented carbon performance is positively associated with market value, whereas actual-carbon performance has no effect on market value. Second, we show that the market value–process-oriented carbon performance nexus is moderated by executive compensation. Third, our results indicate that executive compensation has a positive effect on process-oriented carbon performance, but has no similar effect on actual-carbon performance. Fourth, we show that the process-oriented carbon performance–executive compensation nexus is reinforced for companies that adopt ESG-based sustainable compensation policy. Our results are generally robust to controlling for governance mechanisms, alternative measures/estimations and endogeneities. Overall, our evidence supports legitimisation aspect of NIT and suggests that the market tends to reward firms with superior process-oriented carbon performance instead of undervaluing firms with excessive actual-carbon emissions. This implies that firms appear to use incentive-based mechanisms to symbolically improve their process-oriented carbon performance without substantively improving their actual-carbon performance.
: Executive compensation, , ESG-based sustainable compensation policy, carbon performance, climate change, corporate governance, market value
1045-3172
525-546
Haque, Faizul
8153d83c-427a-4f73-860d-dd7e9460533d
Ntim, Collins G.
1f344edc-8005-4e96-8972-d56c4dade46b
Haque, Faizul
8153d83c-427a-4f73-860d-dd7e9460533d
Ntim, Collins G.
1f344edc-8005-4e96-8972-d56c4dade46b

Haque, Faizul and Ntim, Collins G. (2020) Executive compensation, sustainable compensation policy, carbon performance and market value. British Journal of Management, 31 (3), 525-546. (doi:10.1111/1467-8551.12395).

Record type: Article

Abstract

We examine the interrelationships among executive compensation, environmental-social-governance-based (ESG) sustainable compensation policy, carbon performance and market value. Using one of the largest datasets to-date, consisting of 4,379 firm-year observations covering a period of 15 years (2002-2016) from 13 industrialised European countries and insights from neo-institutional theory (NIT), our findings are four-fold. First, our results suggest that process-oriented carbon performance is positively associated with market value, whereas actual-carbon performance has no effect on market value. Second, we show that the market value–process-oriented carbon performance nexus is moderated by executive compensation. Third, our results indicate that executive compensation has a positive effect on process-oriented carbon performance, but has no similar effect on actual-carbon performance. Fourth, we show that the process-oriented carbon performance–executive compensation nexus is reinforced for companies that adopt ESG-based sustainable compensation policy. Our results are generally robust to controlling for governance mechanisms, alternative measures/estimations and endogeneities. Overall, our evidence supports legitimisation aspect of NIT and suggests that the market tends to reward firms with superior process-oriented carbon performance instead of undervaluing firms with excessive actual-carbon emissions. This implies that firms appear to use incentive-based mechanisms to symbolically improve their process-oriented carbon performance without substantively improving their actual-carbon performance.

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More information

Accepted/In Press date: 10 December 2019
e-pub ahead of print date: 28 February 2020
Published date: 1 July 2020
Keywords: : Executive compensation, , ESG-based sustainable compensation policy, carbon performance, climate change, corporate governance, market value

Identifiers

Local EPrints ID: 436708
URI: http://eprints.soton.ac.uk/id/eprint/436708
ISSN: 1045-3172
PURE UUID: 5b610b0f-e0e3-4b39-af1f-115dc753b2e7
ORCID for Faizul Haque: ORCID iD orcid.org/0000-0003-1556-3466
ORCID for Collins G. Ntim: ORCID iD orcid.org/0000-0002-1042-4056

Catalogue record

Date deposited: 03 Jan 2020 11:01
Last modified: 26 Nov 2021 03:23

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