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Executive Compensation Tied to ESG Performance: International Evidence

Shira Cohen, Igor Kadach, Gaizka Ormazabal and Stefan Reichelstein

Journal of Accounting Research, 2023, vol. 61, issue 3, 805-853

Abstract: Using a wide sample of international publicly traded firms, this paper studies the rapidly increasing practice of incorporating Environmental, Social, and Governance (ESG) metrics in executive compensation contracts. Our evidence suggests that this compensation practice varies at the country, industry, and firm levels 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.

Date: 2023
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Citations: View citations in EconPapers (14)

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https://doi.org/10.1111/1475-679X.12481

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Persistent link: https://EconPapers.repec.org/RePEc:bla:joares:v:61:y:2023:i:3:p:805-853

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Journal of Accounting Research is currently edited by Philip G. Berger, Luzi Hail, Christian Leuz, Haresh Sapra, Douglas J. Skinner, Rodrigo Verdi and Regina Wittenberg Moerman

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