Abstract

Explicit ESG -linked executive remuneration contracts (ESG-linked pay) are a way of incorporating ESG goals such as CO2 emission targets or employee satisfaction in managerial incentives. We conduct a large-scale global study of ESG -linked pay for 2,772 firms across 48 countries over the period of 2009-2018. We find that the adoption of ESG -linked pay is higher for firms in extractive and utility industries, firms located in French civil law countries, or countries with stronger shareholder protections, lower corruption, higher individualism, and low masculinity, as well as for large firms or value firms. The adoption of ESG -linked pay is positively associated with a firm’s financial outcomes as well as the firm’s ESG scores. These results provide insights into the determinants of such pay practice and its implications on firms financial and ESG performances.