Heterogeneity in the Integration of ESG Measures in Executive Compensation: Determinants, Contracting Details and Outcomes

43 Pages Posted: 24 Apr 2023

See all articles by Shilin Hou

Shilin Hou

Independent

Jianfeng Shen

UNSW Business School, University of New South Wales

Chuan Yu

UNSW Australia Business School, School of Accounting

Shan Zhou

The University of Sydney

Date Written: April 12, 2023

Abstract

Corporate social responsibility (CSR) contracting incorporates environmental, social and governance (ESG) related measures in executive compensation plans. Current research on this practice is limited to the US setting, despite it being adopted globally. We investigate the heterogeneity in CSR contracting using data from 59 countries between 2002 and 2019. We find that besides firm-level past ESG performance and industry-level adoption rate, country-level ESG regulations have significant explanatory power in firms’ tendency to adopt CSR contracting. Hand-collected data reveal significant cross-country differences in CSR contracting details. Finally, CSR contracting is positively associated with subsequent financial performance only in countries with more stringent ESG regulations and stronger legal enforcement. In contrast, CSR contracting is associated with subsequent ESG performance regardless of country-level factors.

Keywords: Executive compensation; ESG integration; Cross-country heterogeneity; Contracting details; ESG performance.

Suggested Citation

Hou, Shilin and Shen, Jianfeng and Yu, Chuan and Zhou, Shan, Heterogeneity in the Integration of ESG Measures in Executive Compensation: Determinants, Contracting Details and Outcomes (April 12, 2023). Available at SSRN: https://ssrn.com/abstract=4416929 or http://dx.doi.org/10.2139/ssrn.4416929

Shilin Hou

Independent

Jianfeng Shen

UNSW Business School, University of New South Wales ( email )

School of Banking and Finance
UNSW Sydney, NSW 2052
Australia

Chuan Yu

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

Shan Zhou (Contact Author)

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

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