SUSTAINABLE COMPENSATION AND PERFORMANCE: AN EMPIRICAL ANALYSIS OF EUROPEAN BANKS

• Main Authors: ELISABETTA D’APOLITO, ANTONIA P. IANNUZZI, STEFANIA SYLOS LABINI, EDGARDO SICA
• Format: Article
• Language: English
• Published: World Scientific Publishing 2019-06-01
• Series: Journal of Financial Management, Markets and Institutions
• Subjects: banking compensation; sustainability targets; corporate governance; content analysis; riskiness; performance
• Online Access: http://www.worldscientific.com/doi/epdf/10.1142/S2282717X19400048

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.