Climate change policies and carbon-related CEO compensation systems: an exploratory study of European companies

Abstract

Purpose In view of current climate change policies, this study aims to provide researchers, regulators, and business practice with the current picture of practices regarding carbon-related compensation granted to chief executive officers (CEO). To this end, it examines whether and to what extent European companies translate their carbon reduction strategies into carbon targets underlying their CEOs’ short-term and long-term compensation, what characteristics the carbon targets used commonly have in terms of their quality and time frame, and whether the carbon targets used differ among carbon-intensive, and less carbon-intensive companies. Design/methodology/approach Drawing on the stakeholder-agency theoretical perspective, this study explores the patterns of use and characteristics of carbon-related targets in CEO compensation. In this vein, a content analysis of corporate disclosure for the business years 2018 and 2019 is conducted for a European sample of 65 large listed companies from 16 countries and 11 industries. Findings The findings of this study show that albeit the trend toward new adoption, carbon-related CEO compensation systems are still uncommon. The results also reveal that carbon targets are mainly used to determine short-term compensation. Further, the findings highlight that carbon-related CEO compensation is almost equally widespread among carbon-intensive and less carbon-intensive companies. However, in terms of target quality, the study shows that carbon-intensive companies display greater heterogeneity and opacity. Originality/value By analyzing the characteristics of carbon targets and the prevalence of carbon-related CEO compensation for the first time, this study contributes to the stakeholder-agency theoretical perspective on corporate governance. In view of the European Green Deal and climate-related stakeholder demands, regulators and business practice are encouraged to recognize that carbon-related CEO compensation should gain momentum and the disclosure on this matter should become more transparent and comparable among companies and across industries.

The barriers to adapting accounting practices to circular economy implementation: an evidence from Ghana

“…Businesses’ corporate risks, cash flows and customer relationships will be altered as they transition to a CE. There is mounting evidence that accounting is a critical function in addressing ecological challenges (Bebbington and Larrinaga, 2014; Bebbington et al , 2020a; Winschel, 2021). In this regard, it has been reported in the literature (Bhatia and Tuli, 2018) that developing nations are providing more information on sustainability practices as compared to the companies in the developed nations.…”

A qualitative examination of how accountability manifests itself in a circular economy

“…This is predicated on the backdrop that China has incorporated the CE into its national development strategy. Winschel (2021) used content analysis to determine whether and to what extent European corporations convert their carbon reduction strategy into carbon objectives that serve as the foundation for their chief executive officers' short-term and long-term rewards. The author then analyzed the common quality and timeframe aspects of carbon targets, as well as whether carbon targets differ between carbon-intensive and less carbon-intensive businesses.…”

Mapping the determinants of carbon-related CEO compensation: a multilevel approach

“…Following the past literature on the determinants and effects of sustainable compensation (Winschel and Stawinoga, 2019) and carbon-related compensation (Winschel, 2021), Table 2 provides an overview of the empirical research on the link between executive compensation and environmental performance. With regard to the samples, we note that the majority of studies are based on data from the USA, while only four studies examine this research field from a non-US perspective, based on a worldwide (Francoeur et al , 2017) or a European (Baraibar-Diez et al , 2019; Haque, 2017; Haque and Ntim, 2020) sample.…”

“…Thus, it can be assumed that companies need to reorient their CEO compensation systems towards carbon reduction strategies by tying compensation to carbon-related performance measures. However, emerging research indicates that while carbon emission reduction strategies are becoming widespread, carbon-related CEO compensation is still uncommon and companies display different patterns of use with regard to the carbon-related performance measures underlying CEO compensation (Winschel, 2021). This evidence suggests that the contextual factors that determine the design of management control systems (Bedford et al , 2016; Pondeville et al , 2013) can also impact the accommodation of carbon-related performance measures in CEO compensation systems.…”