Special Issue: Corporate Governance & Risk Management in Financial Institutions: How to Move between Sustainable Management and Performance Goals?

Abstract

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.

Keywords:

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Vol. 07, No. 01

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History

Received 28 July 2018

Accepted 5 March 2019

Published: 9 May 2019

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This is an Open Access article published by World Scientific Publishing Company. It is distributed under the terms of the Creative Commons Attribution 4.0 (CC-BY) License. Further distribution of this work is permitted, provided the original work is properly cited.

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SUSTAINABLE COMPENSATION AND PERFORMANCE: AN EMPIRICAL ANALYSIS OF EUROPEAN BANKS

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