Executive Compensation Tied to ESG Performance: International Evidence

Executive Compensation Tied to ESG Performance: International Evidence

Shira Cohen, Igor Kadach, Gaizka Ormazabal, Stefan Reichelstein

Series number :

Serial Number: 
825/2022

Date posted :

April 30 2022

Last revised :

March 25 2023
SSRN Share

Keywords

  • ESG metrics • 
  • executive compensation • 
  • Institutional ownership

Using a wide sample of international publicly traded firms, this paper studies the rapidly increasing practice of incorporating ESG metrics in executive compensation contracts. Our evidence suggests that this compensation practice varies at the country, industry, and firm level in ways that are consistent with efficient incentive contracting.

We also observe that reliance on ESG metrics in executive compensation arrangements is associated with engagement, voting, and trading by institutional investors, which suggests that firms could be adopting this practice to align their management’s objectives with the preferences of certain shareholder groups. Finally, we find that the adoption of ESG Pay is accompanied by improvements in key ESG outcomes, but not by improvements in financial performance.

Published in

Published in: 
Description: 
Journal of Accounting Research, forthcoming

Authors

Real name:
Shira Cohen
Real name:
Igor Kadach
Real name:
Stefan Reichelstein