Exploring environmental and social KPIs linked to directors’ incentives of alternate exchanges

Abstract

Limited research has been performed on the use of environmental and social (ES) key performance indicators (KPIs) linked to executive remuneration. This is particularly the case for smaller listed companies. This study investigates the integration of ES KPIs in executive compensation structures within small and medium-sized entities (SMEs) listed on alternative stock exchanges in developed and developing markets. Companies listed on the Alternative Investment Market (AIM) stock exchange of the London Stock Exchange (LSE), the Johannesburg Stock Exchange’s (JSE) Alternative Exchange (AltX) in South Africa, and the Bovespa Mais Exchange in Brazil are studied. The study employs a qualitative research approach using content analysis to gather data from publicly available reports on the adoption of ES KPIs linked to executive remuneration. The findings reveal a disparity in the adoption of ES KPIs linked to remuneration amongst the three stock exchanges. AIM-listed companies show a greater integration of ES KPIs in remuneration frameworks compared to AltX and Bovespa Mais-listed companies, where there is little to no disclosure of ES KPIs in remuneration policies. Factors such as the regulatory environment, level of market scrutiny, resource availability, and stakeholder pressures appear to affect the level of ES-based remuneration adoption of companies listed on alternative stock exchanges. The findings highlight the growing recognition and practice of aligning executive remuneration with sustainability goals. This study contributes to existing literature on sustainability practices and offers insights into the use of ES KPIs in remuneration frameworks for SMEs on alternative stock exchanges. The results of the study may aid regulatory bodies and policymakers in developing regulatory frameworks that include practices that encourage linking ES KPIs to remuneration and disclosing these policies to assist in holding management accountable for the sustainability of the business.