ESG-linked Pay Around the World -Trends, Determinants, and Outcomes
91 Pages Posted: 15 Apr 2023
Date Written: August 09, 2024
Abstract
We conduct a large-scale global study of ESG-linked pay for major firms that constitute 85% of the market capitalization across 59 countries. We find that ESG-linked pay adoption is strongly associated with the legal, institutional and cultural environment of the country where the firm is based and with the firm's industry affiliation, and is higher for large firms or firms with high return on assets. The adopters also experience better future ESG and financial performance. Exploiting a regulatory shock that mandates corporate ESG disclosure, we show that the post-shock adoption of ESG-linked pay is followed by enhanced ESG performance and profitability, and that employee satisfaction is a plausible channel. Our findings suggest that pay contracts that direct managerial attention toward sometimes overlooked, yet long-term valuable, dimensions are associated with mutually beneficial outcomes for both shareholders and stakeholders.
Keywords: ESG-linked pay, Executive Compensation, Corporate Governance, Managerial Incentives, Corporate Social Responsibility, ESG Disclosure, Employee Satisfaction ESG-linked pay, Executive Compensation, Corporate Governance, Managerial Incentives, Corporate Social Responsibility, ESG Disclosure, Employee Satisfaction
JEL Classification: G15, G18, G34, G38, J33, J53, J83, J88, K32, K33
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