DP17267 Executive Compensation Tied to ESG Performance: International Evidence

Author(s): Shira Cohen, Igor Kadach, Gaizka Ormazabal, Stefan Reichelstein
Publication Date: April 2022
Keyword(s): ESG metrics, Executive compensation, Institutional Ownership
JEL(s): M12, M41, Q54
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17267

This paper examines the use of ESG performance metrics in executive compensation contracts. We first document that a growing fraction of publicly traded companies around the world now incorporate ESG metrics in the compensation schemes of their top executives. Our analysis links the reliance on these metrics to firm fundamentals, the geographic location of firms as well as the influence of institutional shareholders. Our findings also suggest that the adoption of ESG variables in managerial performance measures is accompanied by improvements in ESG performance and meaningful changes in the compensation of executives.