Esg-Linked Executive Compensation and Managerial Talent

Review of Corporate Finance Studies Winter Conference 2022 https://www.conftool.com/rcfs-winterconference-2022/index.php?page=browseSessions&form_session=408&presentations=show

Posted: 8 Apr 2022

See all articles by Swarnodeep HomRoy

Swarnodeep HomRoy

University of Groningen

Taylan Mavruk

University of Gothenburg

Diem Nguyen

University of Gothenburg

Date Written: April 7, 2022

Abstract

Stakeholders are increasingly concerned with the social and environmental impacts of modern corporations. These concerns have led to directly incentivizing CEOs by making their pay contingent on ESG outcomes. In this paper, we propose to examine the implications of ESG-linked pay on the CEO labour market. The key hypothesis is that the integration of ESG-linked targets increases the complexity of the managerial incentive contracts and attracts more talented CEOs to companies that implement such contracts, which , in turn, will improve ESG performance. Insofar as firms are able to charge higher price through market segmentation, better ESG outcomes can improve financial performance. Combining several administrative data from Swedish firms, we propose to empirically test these hypotheses. Novel data on environmental misdemeanor charges against peer-group firms will be used to account for endogenous association of ESG-linked pay and ESG performance.

Keywords: ESG-linked executive compensation, managerial talent, ESG performance.

JEL Classification: M14, G14, D21, L21.

Suggested Citation

HomRoy, Swarnodeep and Mavruk, Taylan and Nguyen, Diem, Esg-Linked Executive Compensation and Managerial Talent (April 7, 2022). Review of Corporate Finance Studies Winter Conference 2022 https://www.conftool.com/rcfs-winterconference-2022/index.php?page=browseSessions&form_session=408&presentations=show, Available at SSRN: https://ssrn.com/abstract=4077581

Swarnodeep HomRoy

University of Groningen ( email )

Nettlebosje 2
Department of Economics, Econometrics and Finance
Groningen, Groningen 9747 AE
Netherlands

Taylan Mavruk (Contact Author)

University of Gothenburg ( email )

Vasagatan 1
Gothenburg, 40530
Sweden

HOME PAGE: http://www.cff.handels.gu.se/faculty-presentation/taylan-mavruk/

Diem Nguyen

University of Gothenburg ( email )

SE 405 30 Göteborg
Sweden

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