Abstract
In this paper, we analyze the relationship between Chief Financial Officer (CFO) compensation and Corporate Sustainability (CS) by relying on stakeholder-agent theory and institutional theory. Taking a closer look at the German DAX30 and MDAX firms for the business years 2014–2018 (313 firm-year observations), we perform regression and correlation analyses to determine if the different CFO compensation components are related to CS. Our analyses use the environmental, social, governance (ESG) performance as a proxy for CS, determined by the Asset Four database of Thomson Reuters and the CFO compensation data from the Beck et al. (2020) database, and reveal a positive relationship between CS and CFO compensation for pension and stock compensation. Based on our knowledge, this study is the first empirical study that takes a closer look at the relationship between the different CFO compensation components and CS for the German DAX30 and MDAX firms. This result comes with important implications concerning the design of CFO compensation and for future research.
Highlights
In the last few years, sustainability has become more important for our society
Our results suggest that for German DAX30 and MDAX firms, pension compensation and stock compensation play a vital role in their Corporate Sustainability (CS)
Compensation and CS performance, we investigated the extent to which previous findings of similar executive and CEO compensation studies can be applied to Chief Financial Officer (CFO) compensation
Summary
In the last few years, sustainability has become more important for our society. Politics and the firms’ stakeholders require a sustainable development of firms, called Corporate Sustainability (CS). This growing pressure of politics and the internal and external stakeholders on firms to be good corporate citizens influences the way firms act. In. Germany, since 2010, every listed firm has had to implement a management compensation system in connection with its sustainable development. A firm must consider maximizing profits and environmental aspects such as sociality and sustainability [1]. Several ratings have been introduced to determine a firm’s sustainable behavior by measuring its’ environmental, social, and governance (ESG) performance
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