Environmental Audits and Incentive Compensation

This paper studies the link between environmental audits and employee compensation. The context is a one-period principal-agent relationship where the agent must allocate effort between financial and environmental tasks. The former are routinely monitored while the latter are audited (at some cost) only under specific circumstances. We find that the optimal wages have a lower mean and greater variance when there is an environmental audit than when there is not. This puts more risk on the agent, so the expected wage ex ante is higher and the agent's effort on the environmental task greater than in a situation with no environmental audits. Ce papier étudie le lien entre les audits environnementaux et la rémunération des employés. Dans un modèle d'agence à une période, l'agent doit partager son attention entre les aspects environnementaux et ceux strictement financiers de sa tâche. La performance de l'agent sur le plan financier est constamment surveillée; sur le plan environnemental, par contre, l'employeur n'effectue que des contrôles ponctuels au moyen d'audits environnementaux. On trouve que le salaire optimal a une moyenne inférieure et une variance supérieure quand l'employeur a recours à un audit environnemental. La menace d'un audit environnemental augmente donc le risque pesant sur l'agent, ce qui entraîne que le salaire attendu intialement par l'agent sera plus élevé et son attention aux aspects environnementaux plus forte que si cette menace n'existait pas.Environmental audits ; Employee compensation, Audits environnementaux ; Rémunération des employés

Environmental Auditing in Management Systems and Public Policy

New international standards for environmental auditing are now being actively promoted by public authorities and adopted by private firms. One important feature of these standards is their emphasis on managerial systems and incentives that support a wiser use of environmental resources. This paper studies such a system, in which incentive compensation may be based in part on the results of an environmental audit. It is found that optimal wages after an environmental audit is performed should have a greater range than wages paid when no audit has occured. It is also shown that the decision to conduct an environmental audit and the size of the expected wage in this case depend crucially on whether the agent's prudence (or precautionary motives) dominates or not his aversion to risk. It is finally found that the insertion of environmental audits within current management systems would certainly induce a manager to care more about the environment; moreover, although this may come at the expense of less concern for other activities, we find plausible circumstances in which properly designed environmental audits overcome such a tradeoff and increase the manager's attention to both environmental and traditional tasks. The public policy maker's role and interest in promoting environmental auditing standards is also discussed briefly. De nouvelles normes pour les audits environnementaux sont actuellement en train d'être élaborées et implantées par les gouvernements et les entreprises. Ces normes mettent principalement l'accent sur les systèmes de gestion et les incitations qui encouragent un meilleur usage des ressources environnementales. Cet article étudie un tel système, où la rémunération pourrait dépendre en partie des conclusions d'un audit environnemental. On trouve que le salaire versé après la tenue d'un audit devrait varier davantage que celui versé lorsqu'il n'y a pas eu d'audit. On montre aussi que la décision d'effectuer un audit environnemental et le niveau du salaire espéré dans ce cas dépendent essentiellement de la relation entre la prudence (ou la précaution) et l'aversion pour le risque du manager. On montre finalement que l'insertion d'audits environnementaux au sein des systèmes managériaux usuels poussera certainement un manager à se préoccuper davantage de l'environnement,0501s la redistribution de l'effort de ce dernier pourrait bien ne pas survenir au détriment de ses activités principales au sein de l'entreprise. On discute enfin brièvement du rôle et de l'intérêt du décideur public dans l'élaboration et la promotion de nouvelles normes pour les audits.Multi Task Principal Agent Analysis, Environmental Auditing, Risk Aversion, Prudence, Analyse principal-agent multi-tâches, Audits environnementaux, Aversion pour le risque, Prudence

Environmental auditing in management systems and public policy

New international standards for environmental auditing are now being actively promoted by public authorities and adopted by private firms. One important feature of these standards is their emphasis on managerial systems and incentives that support a wiser use of environmental resources. This paper studies such a system, in which incentive compensation may be based in part on the results of an environmental audit. It is found that optimal wages after an environmental audit is performed should have a greater range than wages paid when no audit has occurred. It is also shown that the decision to conduct an environmental audit and the size of the expected wage in this case depend crucially on whether the agent's prudence (or precautionary motives) dominates or not his aversion to risk. It is finally found that the insertion of environmental audits within current management systems would certainly induce a manager to care more about the environment; although this may come at the expense of less concern for other activities, we find plausible circumstances in which properly designed environmental audits overcome such a trade-off and increase the manager's attention to both environmental and traditional tasks. Some implications of the analysis for environmental public policy are also discussed briefly

Environmental Audits and Incentive Compensation

Ce papier étudie le lien entre les audits environnementaux et la rémunération des employés. Dans un modèle d'agence à une période, l'agent doit partager son attention entre les aspects environnementaux et ceux strictement financiers de sa tâche. La performance de l'agent sur le plan financier est constamment surveillée; sur le plan environnemental, par contre, l'employeur n'effectue que des contrôles ponctuels au moyen d'audits environnementaux. On trouve que le salaire optimal a une moyenne inférieure et une variance supérieure quand l'employeur a recours à un audit environnemental. La menace d'un audit environnemental augmente donc le risque pesant sur l'agent, ce qui entraîne que le salaire attendu intialement par l'agent sera plus élevé et son attention aux aspects environnementaux plus forte que si cette menace n'existait pas.This paper studies the link between environmental audits and employee compensation. The context is a one-period principal-agent relationship where the agent must allocate effort between financial and environmental tasks. The former are routinely monitored while the latter are audited (at some cost) only under specific circumstances. We find that the optimal wages have a lower mean and greater variance when there is an environmental audit than when there is not. This puts more risk on the agent, so the expected wage ex ante is higher and the agent's effort on the environmental task greater than in a situation with no environmental audits

Optimising environmental product life cycles: A case study of the European pulp and paper sector

In this paper, we propose a methodology, based on materials accounting and operational research techniques, to assess different industry configurations according to their life cycle environmental impacts. Rather than evaluating a specific technology, our methodology searches for the feasible configuration with the minimum impact. This approach allows us to address some basic policy-relevant questions regarding technology choice, investment priorities, industrial structures, and international trade patterns. We demonstrate the methodology in the context of the European pulp and paper industry. We are able to show that current environmental policy's focus on maximising recycling is optimal now, but that modest improvements in primary pulping technology may shift the optimal industry configuration away from recycling toward more primary pulping with incineration. We show that this will have significant implications for the amount and type of environmental damage, for the location of different stages in the production chain, and for trade between European member states. We caution policy makers that their single-minded focus on recycling may foreclose investment in technologies that could prove environmentally superior. Finally, we hint that member state governments may be fashioning their environmental policy positions at least in part on some of the trade and industrial implications we find