ESG-linked Pay Around the World -Trends, Determinants, and Outcomes

91 Pages Posted: 15 Apr 2023

See all articles by Sonali Hazarika

Sonali Hazarika

Zicklin School of Business, Department of Economics and Finance, Baruch College - The City University of New York

Aditya Kashikar

University of Massachusetts

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Ailsa Röell

Columbia University, School of International and Public Affairs

Yao Shen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance; City University of NY, Baruch College, Zicklin School of Business

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

Suggested Citation

Hazarika, Sonali and Kashikar, Aditya and Peng, Lin and Röell, Ailsa A. and Shen, Yao, ESG-linked Pay Around the World -Trends, Determinants, and Outcomes (August 09, 2024). Available at SSRN: https://ssrn.com/abstract=4410068 or http://dx.doi.org/10.2139/ssrn.4410068

Sonali Hazarika (Contact Author)

Zicklin School of Business, Department of Economics and Finance, Baruch College - The City University of New York ( email )

17 Lexington Avenue
New York, NY 10010
United States

HOME PAGE: http://https://zicklin.baruch.cuny.edu/faculty-profile/sonali-hazarika/

Aditya Kashikar

University of Massachusetts

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Ailsa A. Röell

Columbia University, School of International and Public Affairs ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-9289 (Phone)

Yao Shen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

55 Lexington Ave
New York, NY 10010
United States

City University of NY, Baruch College, Zicklin School of Business ( email )

One Bernard Baruch Way
New York, NY 10010
United States

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