Environmental Performance and Executive Compensation

Posted: 15 Jul 1998

Date Written: November 1995


This paper investigates the use of environmental performance as a component of executive compensation. Results indicate that compensation of chief executive officers at firms with higher levels of environmental exposure includes an environmental risk premium; top executives receive compensation for the personal risks associated with working for an environmentally risky firm. This risk premium is reduced when there is an environmental component in executive compensation. Basing executive compensation upon environmental performance is only one strategy available to firms to control environmental exposure. We find evidence that firms use a variety of methods as substitutes and complements to environmental performance-based compensation.

JEL Classification: G30, J31, K32

Suggested Citation

Soderstrom, Naomi S. and Campbell, Katherine, Environmental Performance and Executive Compensation (November 1995). Available at SSRN: https://ssrn.com/abstract=2545

Naomi S. Soderstrom (Contact Author)

University of Melbourne ( email )

Melbourne, 3010

Katherine Campbell

University of Maryland ( email )

College of Business & Management
Smith School, Rm. 4457
College Park, MD 20742-9157
United States
301-405-5481 (Phone)

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