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Compensation systems for improving environmental performance

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  • Solveig Lothe
  • Ingunn Myrtveit
  • Teresa Trapani

Abstract

This paper provides an initial understanding and insight into solving the dilemma of implementing multiple strategies within the firm. Specifically, we suggest a conceptual framework for compensation systems for different types of firms that face varying levels of conflict between environmental and business performance. The design of a compensation system depends crucially on the availability or not of performance indicators. Our conceptual framework outlines compensation systems for firms with and without the possibility of measuring environmental performance. A ‘multiplier’ model is suggested for firms with good availability of performance indicators for both profits and the environment. Compensation systems for firms without environmental performance indicators (EPIs) become more case specific, depending on the degrees of conflict in the short and long run. Consequently, EPIs give firms much more flexibility in the design of efficient compensation systems. Copyright © 1999 John Wiley & Sons, Ltd and ERP Environment.

Suggested Citation

  • Solveig Lothe & Ingunn Myrtveit & Teresa Trapani, 1999. "Compensation systems for improving environmental performance," Business Strategy and the Environment, Wiley Blackwell, vol. 8(6), pages 313-321, November.
    • Handle: RePEc:bla:bstrat:v:8:y:1999:i:6:p:313-321
    DOI: 10.1002/(SICI)1099-0836(199911/12)8:63.0.CO;2-C
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    Cited by:

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    3. Frederik Dahlmann & Layla Branicki & Stephen Brammer, 2017. "‘Carrots for Corporate Sustainability’: Impacts of Incentive Inclusiveness and Variety on Environmental Performance," Business Strategy and the Environment, Wiley Blackwell, vol. 26(8), pages 1110-1131, December.
    4. Angeloantonio Russo & Stefano Pogutz & Nicola Misani, 2021. "Paving the road toward eco‐effectiveness: Exploring the link between greenhouse gas emissions and firm performance," Business Strategy and the Environment, Wiley Blackwell, vol. 30(7), pages 3065-3078, November.
    5. Douglas A. Adu & Antoinette Flynn & Colette Grey, 2022. "Executive compensation and sustainable business practices: The moderating role of sustainability‐based compensation," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 698-736, March.
    6. Rodríguez-García, Martha del Pilar & Galindo-Manrique, Alicia Fernanda & Cortez-Alejandro, Klender Aimer & Méndez-Sáenz, Alma Berenice, 2022. "Eco-efficiency and financial performance in Latin American countries: An environmental intensity approach," Research in International Business and Finance, Elsevier, vol. 59(C).
    7. Li, Qian & Xue, Qiuzhi & Truong, Yann & Xiong, Jie, 2018. "MNCs' industrial linkages and environmental spillovers in emerging economies: The case of China," International Journal of Production Economics, Elsevier, vol. 196(C), pages 346-355.
    8. James J. Cordeiro & Joseph Sarkis, 2008. "Does explicit contracting effectively link CEO compensation to environmental performance?," Business Strategy and the Environment, Wiley Blackwell, vol. 17(5), pages 304-317, July.
    9. Arena, Marika & Bengo, Irene & Calderini, Mario & Chiodo, Veronica, 2018. "Unlocking finance for social tech start-ups: Is there a new opportunity space?," Technological Forecasting and Social Change, Elsevier, vol. 127(C), pages 154-165.
    10. Ans Kolk & Paolo Perego, 2014. "Sustainable Bonuses: Sign of Corporate Responsibility or Window Dressing?," Journal of Business Ethics, Springer, vol. 119(1), pages 1-15, January.
    11. Berrone, Pascual & Gelabert, Liliana & Fosfuri, Andrea, 2009. "The impact of symbolic and substantive actions on environmental legitimacy," IESE Research Papers D/778, IESE Business School.
    12. Dutta, Saurav K. & Lawson, Raef A. & Marcinko, David J., 2016. "A management control system to support corporate sustainability strategies," Advances in accounting, Elsevier, vol. 32(C), pages 10-17.
    13. Yann Truong & Brian G. Nagy, 2021. "Nascent ventures’ green initiatives and angel investor judgments of legitimacy and funding," Small Business Economics, Springer, vol. 57(4), pages 1801-1818, December.
    14. Francesco Perrini & Angeloantonio Russo & Antonio Tencati & Clodia Vurro, 2011. "Deconstructing the Relationship Between Corporate Social and Financial Performance," Journal of Business Ethics, Springer, vol. 102(1), pages 59-76, March.
    15. Henri, Jean-François & Journeault, Marc, 2010. "Eco-control: The influence of management control systems on environmental and economic performance," Accounting, Organizations and Society, Elsevier, vol. 35(1), pages 63-80, January.
    16. Mike W. Peng & Yuan Li & Longwei Tian, 2016. "Tian-ren-he-yi strategy: An Eastern perspective," Asia Pacific Journal of Management, Springer, vol. 33(3), pages 695-722, September.
    17. Marie-Andrée Caron & Hugues Boisvert & Alexander Mersereau, 2007. "La Comptabilité De Management Environnementale Ou L'Écocontrôle : Utilité Des Outils De Contrôle De Gestion," Post-Print halshs-00543104, HAL.
    18. Karen Maas & Sanne Rosendaal, 2016. "Sustainability Targets in Executive Remuneration: Targets, Time Frame, Country and Sector Specification," Business Strategy and the Environment, Wiley Blackwell, vol. 25(6), pages 390-401, September.
    19. Solveig Lothe & Ingunn Myrtveit, 2003. "Compensation systems for green strategy implementation: parametric and non‐parametric approaches," Business Strategy and the Environment, Wiley Blackwell, vol. 12(3), pages 191-203, May.
    20. Guoyu Lin & Chenyong Liu & Jehu Mette & Rohan Crichton, 2022. "The Effect of Option Grants on Managerial Risk Taking: A Review," Risks, MDPI, vol. 10(8), pages 1-8, July.

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