Executive compensation and ESG performance: An empirical investigation

The term ESG (Environmental, Social, and Governance) is increasingly prevalent in corporate communications, appearing frequently on company websites, in official statements, news articles, and academic literature. ESG is closely tied to the concept of Corporate Social Responsibility (CSR). Investors place significant emphasis on ESG issues, as evidenced by the growing focus of proxy advisory firms and regulatory bodies working to establish standardized ESG reporting frameworks. In response, companies are seeking ways to enhance their ESG performance, one approach being the integration of ESG performance metrics into executive compensation packages. This strategy aims to increase accountability among management for ESG outcomes and better align the interests of managers with those of shareholders. Sustainability compensation policies are emerging as a pivotal response to increased societal demands for sustainable and socially responsible corporate behavior. In today’s complex business environment, companies are moving beyond short‐term financial metrics by integrating environmental, social, and governance (ESG) objectives into executive pay packages. This evolution reflects an acknowledgment that long‐term value creation requires a balance between profitability and the broader impacts on society and the environment.