SUSTAINABLE COMPENSATION AND PERFORMANCE: AN EMPIRICAL ANALYSIS OF EUROPEAN BANKS

This study investigates the financial and non-financial impacts of the use of sustainability criteria in banks’ executive compensation plans. The sample covers all the globally and systemically important European banks over the period 2013–2017. Panel data-fixed effect estimations are employed to mi...

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Bibliographic Details
Published in:Journal of financial management markets and institutions 2019-06, Vol.7 (1), p.1940004-1940004-30
Main Authors: D’APOLITO, ELISABETTA, IANNUZZI, ANTONIA P., LABINI, STEFANIA SYLOS, SICA, EDGARDO
Format: Article
Language:English
Subjects:
banking compensation
Compensation
Compensation plans
content analysis
corporate governance
Economic performance
Executive compensation
Panel data
Risk behavior
Risk taking
riskiness
Sustainability
sustainability targets
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Summary:This study investigates the financial and non-financial impacts of the use of sustainability criteria in banks’ executive compensation plans. The sample covers all the globally and systemically important European banks over the period 2013–2017. Panel data-fixed effect estimations are employed to mitigate endogeneity concerns and to control for within-firm dynamics. The implementation of sustainable criteria in the banks’ remuneration contracts was found to (i) negatively impact economic performance, (ii) negatively impact the riskiness profile, and (iii) positively impact sustainability performance. These findings have important implications for investors as well as banks. Indeed, these results are encouraging for the use of sustainability targets in executive compensation for restricting excessive risk-taking behaviors and improving sustainability performance.
ISSN:2282-717X
2282-717X
DOI:10.1142/S2282717X19400048