Abstract

Human resource management (HRM) scholars and practitioners are increasingly interested in how to leverage HRM tools to address pressing environmental issues while balancing an organization’s need for profit. One important theme of this line of research is the use of contingent compensation (i.e., green compensation) to motivate managers to engage in pro-environmental behavior. However, current research on the efficacy of green compensation in promoting managers’ environmental contribution yields two seemingly contradictory views. First, based on agency theory, green compensation is found to be an effective tool to elicit managers’ environmental efforts. On the other hand, from a stewardship theory perspective, green compensation is regarded as ineffective in attempts to stimulate managers’ environmental contributions. In this paper, we propose that this potential conflict could stem from the way green compensation is designed. To address this issue, drawing upon goal-framing theory, we develop a normative theoretical framework toward designing key features of green compensation that could help to promote managers’ pro-environmental behaviors while mitigating potential pitfalls. These key features include explicitly acknowledging managers’ contributions to environmental endeavors, distribution of the compensation by prominent stakeholders with salient pro-environmental values, distribution of the compensation in public ceremonies, ensuring modesty in size of the compensation compared with managers’ non-contingent compensation, monitoring outcome and process performance, and developing group-based in addition to individual-based compensation. We conclude with implications of this design for theory and practice.