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Do sustainable institutional investors influence senior executive compensation structures according to their preferences? Empirical evidence from Europe
Author(s) -
Focke Maximilian
Publication year - 2022
Publication title -
corporate social responsibility and environmental management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.519
H-Index - 73
eISSN - 1535-3966
pISSN - 1535-3958
DOI - 10.1002/csr.2257
Subject(s) - corporate social responsibility , business , institutional investor , executive compensation , corporate governance , compensation (psychology) , accounting , promotion (chess) , sustainability , empirical evidence , sample (material) , institutional theory , order (exchange) , empirical research , corporate sustainability , finance , economics , public relations , psychology , ecology , philosophy , chemistry , management , epistemology , chromatography , politics , political science , psychoanalysis , law , biology
This paper examines whether sustainable institutional investors promote corporate social responsibility (CSR)‐contingent components (e.g., environmental or social aspects) in senior executive compensation in order to align top management interests in the promotion of sustainability with their own. Empirical analyses of a sample of 5979 firm‐year observations from European firms over the 2010–2017 period showed that the presence of sustainable institutional investors positively predicts the likelihood of firms offering CSR‐contingent compensation contracts. This paper significantly contributes to prior empirical research, which predominantly focuses on the effectiveness of CSR‐contingent components within compensation structures. Sustainable institutional investors as a potential driver of CSR‐contingent components have not yet been examined. We specifically investigate institutional investors that have either a substantial or a time‐dependent belief in CSR. Our results indicate that sustainable institutional investors represent a central external corporate governance mechanism and tend to align top management preferences with their own via compensation structures.