How does CEO compensation influence the execution of IT-based environmental strategies?
Study: Impact of executive compensation on the execution of IT-based environmental strategies under competition
Companies are increasingly expected to implement IT-based environmental strategies, either to reduce the negative environmental impacts that result from the use of IT (“green IT strategies”) or to increase the positive impacts that the use of IT can have on sustainability (“IT-enabled green strategies”). However, since the execution of both green IT strategies and IT-enabled green strategies is time-consuming, requires considerable financial investment, and adds complexity to organizational practices, CEOs face several uncertainties when deciding whether to execute IT-based environmental strategies. The study asks how the various forms of CEO compensation (fixed pay, bonus pay, stock-option pay) impact the execution of IT-based environmental strategies.
How it was studied:
The study draws from agency theory and the contingent natural resource-based theory. Its findings are grounded in archival data and survey data collected from 263 manufacturing firms.
The study provides insights into how to design CEOs’ compensation packages to promote the execution of IT-based environmental strategies:
- CEOs’ fixed pay and bonus pay negatively impact the execution of both green IT strategies and IT-enabled green strategies, which suggests that CEOs will be demotivated to execute IT-enabled environmental strategies if their compensation is based on fixed pay and bonus pay.
- In contrast, long-term oriented stock-option pay positively impacts the execution of both green IT strategies and IT-enabled green strategies, so it serves as a driver of environmental sustainability.
- A highly competitive business environment strengthens the impact of stock-option pay on environmental sustainability, but it weakens fixed pay and bonus pay’s negative impact on the execution of IT-enabled green strategies.
- Highly competitive environments are ideal settings for using stock-option pay to promote the execution of IT-based environmental strategies.