Impact of executive compensation on the execution of IT-based environmental strategies under competition

Abstract

Drawing on agency theory and the contingent natural resource-based theory, this study employs firm-level archival and survey data of US manufacturing firms to examine the impact of CEO compensation forms on the execution of IT-based environmental strategies and the moderating influence of competitive intensity on this impact. The findings reveal that CEO fixed pay and bonus negatively affect the execution of the two types of IT-based environmental strategies, green IT strategies and IT-enabled green strategies, whereas CEO stock option positively influences such execution. The moderation analysis further highlights that while competitive intensity reinforces the positive impact of CEO stock option on both strategies, it weakens the negative impact of CEO fixed pay and bonus only on IT-enabled green strategies. The findings suggest that a highly competitive operating setting represents an ideal setting for using stock option to motivate CEOs to execute these two strategies. At the minimum, this setting helps mitigate the deterrent effect of fixed pay and bonus on CEOs' execution of IT-enabled green strategies. The findings also suggest that firms should align their CEO compensation package with the characteristics of high uncertainty and long payback periods of IT-based environmental strategic endeavors and the competitive conditions they face.