Say on ESG: The Adoption of Say-on-Pay Laws and Firm ESG Performance

57 Pages Posted: 9 Jun 2022

See all articles by Andrea Pawliczek

Andrea Pawliczek

University of Colorado at Boulder

Mary Ellen Carter

Boston College - Department of Accounting

Rong (Irene) Zhong

University of Illinois at Chicago - Department of Accounting

Date Written: November 30, 2021

Abstract

Investors are increasingly demonstrating a preference for superior ESG performance among their portfolio firms. Concurrently, the use of ESG-related contracting metrics in executive compensation contracts has increased. We investigate these two related issues in the context of the adoption of Say-on-Pay (SOP) voting laws, which provide investors a direct voice about compensation and an additional avenue to express their preferences. Exploiting the staggered adoption of SOP laws around the world, we find that the use of ESG metrics in compensation contracts and ESG performance increase after SOP adoption. Notably, the improvements in ESG performance are concentrated in countries with greater increases in ESG contracting, suggesting that ESG contracting serves as a pathway to facilitate improvement in ESG performance. Additionally, improvements are concentrated among firms with sophisticated owners, in stakeholder countries, and those with CSR committees. Lastly, we show that the improvement in ESG performance contributes to the positive effect of SOP laws on shareholder value.

Keywords: corporate social responsibility, compensation contracting, say on pay laws, corporate governance, regulations

JEL Classification: G15, G34, G38, M12

Suggested Citation

Pawliczek, Andrea and Carter, Mary Ellen and Zhong, Rong (Irene), Say on ESG: The Adoption of Say-on-Pay Laws and Firm ESG Performance (November 30, 2021). Available at SSRN: https://ssrn.com/abstract=4125441 or http://dx.doi.org/10.2139/ssrn.4125441

Andrea Pawliczek (Contact Author)

University of Colorado at Boulder ( email )

1070 Edinboro Drive
Boulder, CO 80309
United States

Mary Ellen Carter

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Rong (Irene) Zhong

University of Illinois at Chicago - Department of Accounting ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States

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