Beyond ESG: Executive Pay Metrics and Shareholder Support

Using a novel global dataset of executive pay contracts, we show that the surge in ESG and other compensation metrics is less about directing managerial effort and more about securing shareholder consent. ESG metrics – classified via SASB standards – are often added in areas of existing strength, with negligible effects on overall ESG outcomes. Instead, metrics of any type are added after high say-on-pay dissent and chosen to align with proxy advisors’ preferences. Pay metrics raise say-on-pay approval and reduce shareholder proposals and dissent on managerial proposals. These findings challenge contract theory’s prediction that metrics are selected to direct attention to neglected objectives and suggest that the surge in ESG and other metrics reflects conformity pressures and the desire to appease shareholders.