Aligning CEO compensation with sustainability performance: the role of CEO duality, board size, and compensation committees
Abstract This study uses agency theory to examine how board size, compensation committee, and CEO duality align the pay-performance relationship with long-term sustainability performance. We examined companies from nine Asian emerging economies with a sustainability score greater than 0.50 between 2...
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| Format: | Article |
| Language: | English |
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Springer
2024-12-01
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| Series: | Discover Sustainability |
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| Online Access: | https://doi.org/10.1007/s43621-024-00491-0 |
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| _version_ | 1841545050052362240 |
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| author | Muhammad Farooq Shabbir Jalal Rajeh Hanaysha Elaine Yen Nee Oon Muhammad Asif Hassan Danial Aslam |
| author_facet | Muhammad Farooq Shabbir Jalal Rajeh Hanaysha Elaine Yen Nee Oon Muhammad Asif Hassan Danial Aslam |
| author_sort | Muhammad Farooq Shabbir |
| collection | DOAJ |
| description | Abstract This study uses agency theory to examine how board size, compensation committee, and CEO duality align the pay-performance relationship with long-term sustainability performance. We examined companies from nine Asian emerging economies with a sustainability score greater than 0.50 between 2010 and 2019. The findings support the pay-performance relationship proposed by agency theory in the presence of a robust governance structure. The relationship is more significant in firms with high ESG scores. Our study claimed that the compensation committee has a significant role in aligning sustainability objectives with CEO compensation, which improves the firm's market and financial performance. However, board size has no discernible impact on the CEO pay-performance relationship. CEO duality negatively affects this alignment since the CEO misuses their power to influence the compensation committee's role in tying sustainability agendas with the CEO's pay performance framework. Furthermore, CEO compensation is significantly impacted by firm size, which is justified by the complexity and increased responsibilities associated with managing larger firms. Conclusively, this investigation suggests that the inconclusive evidence on CEO compensation around the world should be studied with governance mechanisms. This study advances knowledge of agency theory and the connection between sustainability performance and compensation. The findings of the study highlight the role of governance structure in aligning executive compensation with sustainability to improve long-term performance. These findings suggest policymakers promote strong governance mechanisms that reduce the CEO's power to influence the board and enhance the independence of the compensation committee to independently design the executive compensation package essential for aligning executive pay with sustainability performance. |
| format | Article |
| id | doaj-art-610d186cc9244506a5e4d3cf8db5a12e |
| institution | Kabale University |
| issn | 2662-9984 |
| language | English |
| publishDate | 2024-12-01 |
| publisher | Springer |
| record_format | Article |
| series | Discover Sustainability |
| spelling | doaj-art-610d186cc9244506a5e4d3cf8db5a12e2025-01-12T12:05:06ZengSpringerDiscover Sustainability2662-99842024-12-015111610.1007/s43621-024-00491-0Aligning CEO compensation with sustainability performance: the role of CEO duality, board size, and compensation committeesMuhammad Farooq Shabbir0Jalal Rajeh Hanaysha1Elaine Yen Nee Oon2Muhammad Asif3Hassan Danial Aslam4The Islamia University of BahawalpurSkyline University CollegeUniversiti MalayaThe Islamia University of BahawalpurThe Islamia University of BahawalpurAbstract This study uses agency theory to examine how board size, compensation committee, and CEO duality align the pay-performance relationship with long-term sustainability performance. We examined companies from nine Asian emerging economies with a sustainability score greater than 0.50 between 2010 and 2019. The findings support the pay-performance relationship proposed by agency theory in the presence of a robust governance structure. The relationship is more significant in firms with high ESG scores. Our study claimed that the compensation committee has a significant role in aligning sustainability objectives with CEO compensation, which improves the firm's market and financial performance. However, board size has no discernible impact on the CEO pay-performance relationship. CEO duality negatively affects this alignment since the CEO misuses their power to influence the compensation committee's role in tying sustainability agendas with the CEO's pay performance framework. Furthermore, CEO compensation is significantly impacted by firm size, which is justified by the complexity and increased responsibilities associated with managing larger firms. Conclusively, this investigation suggests that the inconclusive evidence on CEO compensation around the world should be studied with governance mechanisms. This study advances knowledge of agency theory and the connection between sustainability performance and compensation. The findings of the study highlight the role of governance structure in aligning executive compensation with sustainability to improve long-term performance. These findings suggest policymakers promote strong governance mechanisms that reduce the CEO's power to influence the board and enhance the independence of the compensation committee to independently design the executive compensation package essential for aligning executive pay with sustainability performance.https://doi.org/10.1007/s43621-024-00491-0CEO compensationFirm performanceCEO dualityBoard sizeCompensation committee |
| spellingShingle | Muhammad Farooq Shabbir Jalal Rajeh Hanaysha Elaine Yen Nee Oon Muhammad Asif Hassan Danial Aslam Aligning CEO compensation with sustainability performance: the role of CEO duality, board size, and compensation committees Discover Sustainability CEO compensation Firm performance CEO duality Board size Compensation committee |
| title | Aligning CEO compensation with sustainability performance: the role of CEO duality, board size, and compensation committees |
| title_full | Aligning CEO compensation with sustainability performance: the role of CEO duality, board size, and compensation committees |
| title_fullStr | Aligning CEO compensation with sustainability performance: the role of CEO duality, board size, and compensation committees |
| title_full_unstemmed | Aligning CEO compensation with sustainability performance: the role of CEO duality, board size, and compensation committees |
| title_short | Aligning CEO compensation with sustainability performance: the role of CEO duality, board size, and compensation committees |
| title_sort | aligning ceo compensation with sustainability performance the role of ceo duality board size and compensation committees |
| topic | CEO compensation Firm performance CEO duality Board size Compensation committee |
| url | https://doi.org/10.1007/s43621-024-00491-0 |
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