Executive compensation and sustainable business practices: the moderating role of sustainability-based compensation

This study seeks to contribute to the extant business strategy and the environment literature by investigating the effect of CEO pay and executive compensation (EC) on sustainable business practice (SBPs). It also distinctively ascertains whether the pay for-sustainability sensitivity (PSS) is reinforced in firms with sustainability-based compensation (SBC) policy. Using a sample of 262 UK listed firms from 2009 to 2018, our findings are threefold. First, the findings reveal that both CEO pay and EC variables have positive effect on all SBP measures, except CO2 reduction performance where the link is negative. Second, the study shows that the PSS is reinforced for firms that implement SBC policy. Finally, we detect that both the PSS and the moderation effect of SBC on the PSS are higher in the symbolic construct of SBPs than the actual measures. The results support insights drawn from neo-institutional theory. The findings have key implications for regulators and policy makers.