ESG metrics in executive compensation: A multitasking approach

Vikas Agarwal, Juan-Pedro Gómez, Kasra Hosseini and Manish Jha

No 25-10, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: We model firm executives' compensation incentives when ESG metrics are added to their performance-vested contracts. Drawing on multitasking theory, we predict that incentives tied to standard accounting or financial metrics are reduced after introducing ESG metrics to induce executives to reallocate effort toward ESG goals. Empirically, the expected pay-performance sensitivity of standard metrics decreases by about 20% after ESG adoption, especially when ESG metrics are more numerous, less complementary, or less measurable. The tradeoff is associated with improved ESG ratings, consistent with efficient incentive design under multitasking that optimally balances effort across financial and ESG objectives.

Keywords: ESG pay; multitasking; pay-performance sensitivity; dollar delta; incentives; executive compensation; Environmental; Social; and Governance (ESG) metrics (search for similar items in EconPapers)
JEL-codes: G32 G34 J33 M12 M14 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-env, nep-hrm and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/330666/1/1940317118.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:330666

Access Statistics for this paper

More papers in CFR Working Papers from University of Cologne, Centre for Financial Research (CFR) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().