Effects of Executive Sustainability Compensation on Nonexecutive Employee Behavior

ABSTRACT In response to growing awareness of climate change and increasing regulatory sustainability requirements, many companies now link executive compensation to specific sustainability criteria. Although prior research has examined the effects of such incentives on executive behavior, this study explores how executive sustainability‐linked compensation and leadership tone influence the sustainable behavior of nonexecutive employees. Using an online experiment, I find that informing nonexecutive employees about executive bonuses tied to sustainability targets significantly increases their likelihood of making sustainable decisions. In contrast, tone from the top information does not have a statistically significant effect. The results have important implications for theory, practice, and policy by highlighting transparent communication of sustainability‐linked executive incentives as a simple yet powerful tool for fostering sustainable change among nonexecutive employees as well. Ultimately, this study contributes to advancing the understanding of employee‐level sustainability efforts and offers practical strategies to support the sustainable transformation of business and society.