Are Top Executives Rewarded for Environmental Performance? The Role of the Board of Directors in the Context of China

Abstract

Based on institutional and agency theories, this study investigates whether firms use environmental performance as a criterion in incentive schemes for top executives in China, where the weakness of environmental regulations is criticized, and examines the potential moderating effects of board composition on the relationship between environmental performance and top executives’ compensation. Our analysis of 687 publicly traded firms in the manufacturing industry for the period 2008–2010 finds evidence of a positive association between environmental performance and top executives’ compensation. It shows that in firms with Chief Executive Officer–chairperson duality and larger boards, there is a tighter environmental performance–pay relationship, while top executives are found to be rewarded less for environmental performance in firms whose directors hold significant ownership. The presence of independent directors is not found to exert a significant influence on the environmental performance–pay relationship.

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