Research On The Correlation Between Environmental Performance And Executive Compensation

Along with the increasingly stringent environmental regulation and stakeholders' increasingly attention to corporate environmental behavior, more and more corporates have gradually realized the importance of environmental performance of their financial growth and sustainable competitive advantage. According to principal-agent model, clear compensation contract can be helpful to motivate executives actively undertake environmental responsibility, enhance corporate environmental performance, and provide returns for executives in environmental policy-making efforts. In practice, some large corporates and groups have already begun to do so, and its announced information report clearly shows that environmental assessment will be included into the scope of executive performance appraisal. Based on this, this paper combines the current macro background and micro development stage, to investigate the correlation between environmental performance and executive compensation, from the internal governance and external legal environment perspectives separately examine the influences of the board of directors and the regional legal system environment on the correlation between environmental performance and executive compensation. This paper aims to study the relationship between environmental performance and executive compensation, provide empirical support for corporates to improve their compensation contracts, optimize governance mechanisms.This paper firstly summarized the literatures that related to environmental performance and executive compensation. Based on the organizational legitimacy theory, corporate reputation theory, stakeholder theory, agency theory, this paper summarized the environmental evaluation standards and methods for measuring environmental performance, then build the environmental evaluation system of this paper, and propose several hypotheses. This paper uses the data of Shanghai A-share listed companies of heavy pollution industry from 2011 to 2013, build regression models for empirical analysis. The main results are:(1) environmental performance and executive compensation are positive relevant; (2) when the board of directors shareholding is higher, the correlation between environmental performance and executive compensation is stronger, the influence of independent directors proportion on the correlation between environmental performance and executive compensation is not significant; (3) when regional legal environment is better, the correlation between environmental performance and executive compensation is stronger. Finally, according to the results of empirical analysis, this paper put forward some suggestions:based on comprehensive performance to optimize the compensation contract; enhance board of directors shareholding, establish the socially responsible board; strengthen the effects of incentive and restraint of legal system on corporate environmental behavior.