Reframing Theoretical Perspectives on CEO Compensation and Corporate Environmental Performance: A Stewardship Approach

The agency theory presumes that the performance management of chief executive officers (CEOs) depends highly on executive compensation. It is the main theoretical framework that is applied in executive compensation research. Research evidence shows that CEO decisions result from factors which extend past financial reward considerations. Prior studies reveal that substantial financial incentives sometimes fail to produce better environmental results. As a result, the effectiveness of agency-driven incentives for sustainability advancement remains unclear. This paper shows that agency theory on its own fails to explain all CEO decision-making behaviour. Findings from existing studies show that some CEOs maintain their focus on organisational goals despite receiving financial compensation that is neither linked to environmental performance nor aligned with their counterparts in similar entities. Also, while compensation packages continue to increase, environmental challenges persist. By contrasting agency, stewardship, and managerial power theories, this paper develops a stewardship-based model that shows that intrinsic motivation, ethical commitment and long-term thinking may influence environmental outcomes. This framework emphasises the role of value-based leadership in driving environmental outcomes. Moreover, it challenges existing compensation structures to consider the effect of stewardship-based leadership. This approach would support governance frameworks like South Africa's King IV and sustainable development goals, which call for ethical leadership, accountability and sustainable value creation.