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Empirical research in the area of corporate sustainability highlights potential conflicts between corporate financial performance and environmental performance. In such a situation, agency theory arguments applied to the corporate environmental context predict that top management compensation should be explicitly linked to environmental performance in order to bring about proper alignment of organizational environmental goals and management incentives. We test this proposition for a sample of 207 Standard & Poor 500 firms in the US in 1996 who explicitly report in Investor Responsibility Research Council (IRRC) surveys the presence or absence of a contractual link between environmental performance and executive compensation. We find that only in firms with an explicit linkage between environmental performance and executive contracts is there is any evidence of a significant impact of firm‐level …