CEO equity-linked compensation and environmental scores by MCDA

Purpose In recent years, the issue of CEO compensation, long a focal point of academic and institutional debate, has gained renewed prominence considering the integration of Environmental, Social, and Governance (ESG) criteria into corporate strategies. The environmental component is becoming a key driver in the design of compensation policies, reflecting the evolution of corporate governance toward more sustainable and long-term oriented models. This study presents an innovative empirical analysis of the relationship between Environmental Score Performance (ESP) and total CEO compensation (Total Award – TA), incorporating control variables such as profitability and state ownership through sovereign wealth funds. The analysis is based on a sample of publicly listed U.S. companies over the period 2015–2023 and employs a dynamic panel regression model estimated using the Arellano-Bond Generalized Method of Moments approach, which is particularly suited to capturing compensation persistence and unobserved firm heterogeneity. Design/methodology/approach The originality of this work lies in the use of ESP as a synthetic and strategic indicator of environmental sustainability, and in the interpretation of compensation not only as an incentive mechanism but also as a symbolic signal of corporate value. Additionally, we introduce a novel multi-criteria decision analysis framework that provides a mathematically rigorous approach to optimizing CEO compensation structures by integrating environmental performance, financial metrics, and institutional ownership considerations. Findings The findings suggest a weak positive relationship between environmental sustainability and executive compensation. Finally, we conducted additional testing to assess the relationship in the presence of explicit incentive mechanisms. This study contributes to the ongoing debate on sustainable corporate governance by offering valuable insights for the evolution of ESG-aligned compensation systems and opening new avenues for future comparative and multidimensional research. Originality/value This study confirms that environmental sustainability is gradually gaining relevance in corporate compensation logic. While its influence remains comparatively limited when viewed in relation to more established variables such as profitability and firm size, indications of structural change are beginning to emerge. In this context, the role of the executive has evolved from that of a mere executor of economic strategies to that of a responsible actor accountable to a broad range of stakeholders. Recognizing and rewarding this role through coherent incentive systems is a central challenge in building a truly future-oriented economy. The multi-criteria decision analysis framework introduced in this study provides a mathematically rigorous and practically applicable tool for addressing this challenge, offering a pathway toward more sustainable and effective corporate governance practices.