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Behavioral Insights fostering 'Pay for Sustainability' Remuneration Schemes

Authors: Julia M. Puaschunder;

Behavioral Insights fostering 'Pay for Sustainability' Remuneration Schemes

Abstract

ABSTRACT: In the aftermath of the 2008/09 World Financial Recession as well as after the COVID-19 external economic shock fallout, the stakeholder interest in integrating social considerations in corporate and finance market endeavors has risen steadily. The looming climate change crisis has exacerbated the call for sustainability in economics, finance and professional governance and leadership. In the USA and Europe, Green New Deals are governmental projects to imbue sustainability practices in corporate and financial sector activities. In the area of capital market supervision in the USA, the Securities and Exchange Commission (SEC) has proposed mandatory disclosures regarding climate change and climate risks in the wake of attention to Environmental, Social and Governance (ESG). In Europe, the European Sustainable Finance Taxonomy classifies industry’s CO2 emission levels in order to use transparency to curb environmentally-harmful activities for the sake of sustainability. Financial Social Responsibility continues to grow in qualitative and quantitative terms, foremost in Socially Responsible Investment (SRI). The corporate sector has responded to these sustainability trends with the concept of ‘Pay for Sustainability’ as an executive compensation form that either lowers variable pay if sustainability is not implemented or provides executive bonuses for pro-active sustainability integration into corporate activities. This paper addresses contributions of behavioral economics for improving the acceptance and efficiency of ‘Pay for Sustainability’ remuneration schemes in three features: (1) Socio-psychological aspects of remuneration that heighten social status and social belonging imbuing meaning and purpose to work; (2) Temporal bundling strategies that envision now and the future at the same time, which helps aligning short-term with long-term goals of corporations; (3) Prospect Theory’s insights that losses emotionally loom larger than gains, which provides valuable communication nudges for outlining the intangible emotional value of sustainability care. Overall, this article discusses the current state of ‘Pay for Sustainability’ remuneration and highlights positive affirmation and communication nudges to work with social status-enhancing behavioral communication features that boost the positive acceptance of and reaction to ‘Pay for Sustainability.’ KEYWORDS: Corporate Social Responsibility, Behavioral Economics, Behavioral Insights, Economics, Environmental financialization, European Green Deal, Executive compensation, Finance, Green New Deal, Human Resources Management, Leadership, Management, Organizational Behavior, Pay for Sustainability, Sustainable finance

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selected citations
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This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
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popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
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influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
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impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
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