Carbon Performance and Executive Compensation: The Moderating Role of Governance

Amid growing global emphasis on corporate environmental responsibility, the role of executive compensation (EC) in driving carbon performance (CP) remains underexplored, particularly in a cross-country context. This paper addresses this limitation directly by examining the association between EC and CP, considering the moderating effects of corporate governance (CG) and national governance quality (NGI). Using a panel dataset of 1,122 firms across 28 countries over 18-year period (i.e., 13,413 firm-year observations), we find that EC is positively associated with carbon reduction initiatives (process-oriented CP), while negatively associated with carbon intensity (poor-outcome-oriented CP). Our results further reveal that CG mechanisms, such as board size, independent directors, CEO-chair duality, gender diversity, and sustainability committee, moderate the EC–CP nexus, strengthening the alignment between executive incentives and environmental objectives. Additionally, firms in countries with low NGI rely more on EC to achieve meaningful CP improvements. These findings remain robust across alternative model specifications and endogeneity tests. By integrating insights from neo-institutional theory, this study contributes to the literature by demonstrating how governance structures at both firm and national levels shape the effectiveness of EC in promoting sustainability. Our results offer practical implications for policymakers, investors, and corporate leaders seeking to design governance frameworks that strengthen the link between executive incentives and CP in diverse institutional contexts.