CEO Compensation and Sustainability Reporting Assurance: Evidence from the UK

Companies are expected to monitor sustainable behaviour to help improve performance, enhance reputation and increase chances of survival. This paper examines the relationship between sustainability committees and independent external assurance on the inclusion of sustainability-related targets in CE...

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Bibliographic Details
Published inJournal of business ethics Vol. 158; no. 1; pp. 233 - 252
Main Authors Al-Shaer, Habiba, Zaman, Mahbub
Format Journal Article
LanguageEnglish
Published Dordrecht Springer 01.08.2019
Springer Netherlands
Springer Nature B.V
Subjects
Business and Management
Business Ethics
Chief executive officers
Committees
Companies
Compensation
Contracts
Corporate governance
Education
Ethics
Executive compensation
Governance
Management
Original Paper
Philosophy
Quality of Life Research
Reputations
Sustainability
Sustainability reporting
Task performance
Assurance
Corporate governance
Compensation
Sustainability
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Summary:Companies are expected to monitor sustainable behaviour to help improve performance, enhance reputation and increase chances of survival. This paper examines the relationship between sustainability committees and independent external assurance on the inclusion of sustainability-related targets in CEO compensation contracts. Using a sample of UK FTSE35O companies for 2011-2015 and controlling for governance and firm characteristics, we find both board-level sustainability committees and sustainability reporting assurance have a positive and significant association with the inclusion of sustainability terms in compensation contracts. However, there is no joint impact between the voluntary use of independent external assurance and the role of sustainability committees on CEO compensation contracts. Sustainability-related terms in compensation contracts are more likely to be included, and higher compensation is likely to be paid, when assurance is provided by a Big4 firm and when a company operates in a sustainability-sensitive industry. Our findings highlight the potential of assured sustainability reports in assessing CEO performance in sustainability-related tasks, especially when sustainability metrics are included in CEO compensation contracts. Overall, our results suggest companies that invest in voluntary assurance are more likely to monitor management's behaviour and be concerned about the achievement of sustainability goals.
ISSN:0167-4544
1573-0697
DOI:10.1007/s10551-017-3735-8