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Incentive Plans, Pay-for-non-financial Performance and ESG Criteria: Evidence from the European Banking Sector

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  • Elisabetta D‘Apolito
  • Antonia P. Iannuzzi

Abstract

The new regulations of banking compensation following the sub-prime crisis require that incentive plans must be linked not only to performance parameters, but also to non-financial or qualitative metrics related to social value produced by banks. This paper aims to analyze this issue by developing a qualitative rating (ESG-remuneration performance rating) to be used not only to investigate the spread and the diversification of such qualitative indicators, but also to analyze the best practices by banks. At a methodological level, the content analysis approach is adopted. The sample covers all of the “European globally systemically important institutions” (G-SIIs), while the investigation period regards the three-years 2014-2016. The main results are encouraging as they show a good diffusion of qualitative metrics by bank incentive plans; however, the intensive use, synthesized by the “ESG-remuneration performance rating”, is still inadequate. Moreover, the analysis reveal other criticalities linked to the implementation of the balance scorecard and the use of measurement tools in order to quantify the qualitative metrics correctly. (Note 1).

Suggested Citation

  • Elisabetta D‘Apolito & Antonia P. Iannuzzi, 2017. "Incentive Plans, Pay-for-non-financial Performance and ESG Criteria: Evidence from the European Banking Sector," International Business Research, Canadian Center of Science and Education, vol. 10(10), pages 169-181, October.
    • Handle: RePEc:ibn:ibrjnl:v:10:y:2017:i:10:p:169-181
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    References listed on IDEAS

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    1. 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.
    2. Bryan Hong & Zhichuan Li & Dylan Minor, 2016. "Corporate Governance and Executive Compensation for Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 136(1), pages 199-213, June.
    3. Campbell, Katherine & Johnston, Derek & Sefcik, Stephan E. & Soderstrom, Naomi S., 2007. "Executive compensation and non-financial risk: An empirical examination," Journal of Accounting and Public Policy, Elsevier, vol. 26(4), pages 436-462.
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    Cited by:

    1. Veronika Belousova & Oxana Bondarenko & Nikolay Chichkanov & Denis Lebedev & Ian Miles, 2022. "Coping with Greenhouse Gas Emissions: Insights from Digital Business Services," Energies, MDPI, vol. 15(8), pages 1-26, April.
    2. Simona Galletta & Sebastiano Mazzù & Valeria Naciti, 2021. "Banks' business strategy and environmental effectiveness: The monitoring role of the board of directors and the managerial incentives," Business Strategy and the Environment, Wiley Blackwell, vol. 30(5), pages 2656-2670, July.
    3. Galletta, Simona & Mazzù, Sebastiano & Naciti, Valeria, 2022. "A bibliometric analysis of ESG performance in the banking industry: From the current status to future directions," Research in International Business and Finance, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    banking compensation; non-financial performance indicators; ESG criteria; content analysis;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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