An examination of the structure of executive compensation and sustainability

Abstract

Many studies have been done on the relationship between executive compensation against economic, environmental and social performance, which are the underlying elements of sustainability. This paper seeks to understand whether there is a direct link between compensation and sustainability, and came up with two general hypotheses. We gathered data from IT firms listed in the S&P 500 from the period between 2006 and 2008.

The study concludes that there is a strong negative association between percentage of Salary and Total Sustainability and Sustainability Strengths and strong positive association between Salary and Sustainability Weakness. Secondly, we found that there is a strong positive relationship between number of Stock Options and Total Sustainability and Sustainability Strengths, while the relationship between number of Stock Options and Sustainability Weakness was inconclusive.

Our findings may be useful in providing important insights into sustainability and compensation structure and provide guidance to firms when designing compensation plans. Further exploration by incorporating bonus into the study and implications for practice and research are also discussed.