IBSS scholar's research finds air quality affects the pay gap between corporate executives and employees

Recently, the research paper titled " Breathing life into equity: How air pollution influences corporate pay gap " by Dr Haili Wu from the Department of Economics at the International Business School Suzhou (IBSS) of Xi'an Jiaotong-Liverpool University (XJTLU) has been accepted and published in the Tier 1* journal Journal of Environmental Management. Dr Wu’s research investigated the relationship between air quality and the pay gap between executives and employees, emphasizing the importance of companies adjusting their compensation policies in heavily polluted areas to attract and retain talent, enhance ESG performance, and provide strategies for policymakers and investors to promote environmental sustainability and social responsibility.

Using a dataset encompassing 19,229 Chinese listed firm-year observations from 2014 to 2020, Dr Wu found that companies tend to reduce the pay gap in response to air pollution. This effect is especially strong in corporations with greater public scrutiny, strong corporate governance, and fewer financial constraints. Moreover, such strategic adjustments in compensation policies not only help firms retain valuable human resources, but also ultimately enhance their green innovation and ESG performance, as diminished pay gap contribute to fostering increased employee engagement and motivation within the work environment.

Building upon previous examinations of air pollution's economic costs on corporations, Dr Wu’s findings underscore the necessity for firms to offer enhanced benefits and improved working conditions. Such proactive measures are vital for maintaining a skilled workforce, particularly in sectors and regions heavily affected by pollution.

Moreover, the study pioneers the exploration of environmental consciousness and labor migration as drivers of social and economic fairness. It challenges the status quo of corporate remuneration norms, suggesting that ecological challenges should be integral to equitable work-force management strategies. In high-pollution areas, the shifting negotiation dynamics between employees and employers necessitate compensation adjustments to attract and retain talent in a health-conscious labor market.

Policymakers can use these insights to formulate guidelines that require companies to integrate environmental considerations into their compensation plans. By providing incentives for adopting fair pay practices, these guidelines aim to ensure equitable compensation and foster a commitment to sustainability. This approach will promote an economic system where corporate success and environmental sustainability are mutually supportive.

Investors should use these findings to identify companies that exhibit responsible human resource and environmental practices, recognizing them as potentially lower-risk and higher-return investment opportunities. The correlation between strong corporate governance, fair compensation, and environmental responsiveness could guide investment choices. Environmental advocates could push for enhanced corporate accountability in environmental management. By pushing for policies that align business practices with societal welfare, they can strategically select partners and allocate support. This approach not only promotes the formation of networks committed to sustainable business practices but also fosters a collaborative effort towards heightened environmental responsibility.

Dr Haili Wu is an Associate Professor of Practice in Economics at International Business School Suzhou (IBSS), Xi’an Jiaotong-Liverpool University (XJTLU), Honorary Associate Professor at the University of Liverpool, a Fellow of the Higher Education Academy in the UK, and Chartered Financial Analyst. Dr Wu holds BA and MA in Economics at Cambridge University, LLM (Master of Laws) at Queen Mary College, University of London, and PhD in Psychology at University College London (UCL). Her research focuses on the areas of economic/financial decision making, cultural influence on business, cross-cultural psychology, sustainable development, international trades, capital markets and the Chinese economy. She has published in (leading) journals and books such as Journal of Behavioral Finance、Journal of Environmental Management、Developing the Intuitive Executive: Using Analytics and Intuition for Success、The SAGE Handbook of The Chinese Economy and Financial System、The Elgar Companion to Consumer Behaviour and the Sustainable Development Goals and others.

Journal of Environmental Management (JEM) is a Tier 1* peer-reviewed academic journal in the field of environmental management, listed as ABS3, ABDC-A level, with an impact factor of 8.0, dedicated to advancing the understanding and application of environmental management practices. Environmental management encompasses the systematic approach to dealing with environmental issues through planning, controlling, monitoring, and improving the interactions between human activities and the natural environment. This includes strategies for sustainable use of resources, pollution control, conservation of biodiversity, and mitigation of environmental impacts.