Sustainability governance and CEO compensation in MENA firms

Abstract

This study examines whether CEOs receive higher compensation when their firms establish high-quality sustainability committees and obtain independent third-party assurance of their sustainability reports, and whether board gender diversity and CEO board membership moderate these relationships. The empirical dataset comprises publicly listed firms from 13 countries in the MENA region. It includes 2,183 firm-year observations drawn from 486 firms over the 2014–2023 period. The data were primarily obtained from the Refinitiv database and analyzed using panel regression models with firm and year-fixed effects. The results reveal that both sustainability committee quality and external assurance quality are positively associated with CEO compensation (r = 0.17, p < 0.05; r = 0.05, p < 0.05), supporting the signaling and stakeholder theories by emphasizing how robust ESG governance conveys legitimacy and aligns executive incentives with sustainable value creation. Board gender diversity weakened the positive effect of sustainability committee quality on pay (interaction β = –0.00, p < 0.01), suggesting stronger oversight and reduced symbolic ESG use. Conversely, CEO board membership shows no significant moderating effect, indicating limited influence in this context. Additional analyses confirm the robustness of these relationships and reveal that improvements in ESG and CO2 performance partially mediate the link between governance structure and executive remuneration. This study offers practical insights for policymakers and boards aiming to align CEO compensation with sustainability objectives in contexts with limited regulatory enforcement.