The effect of ESG-linked compensation on firms' ESG performance
Abstract
This study examines the effect of having an ESG-linked compensation plan on ESG
performance. In addition to that, board characteristics effect on linking ESG metrics to CEO
compensation plans have been examined. Based on previous research, agency theory and
corporate governance characteristics, two hypotheses were developed which posits that
having an ESG-linked compensation plan would improve ESG performance and that board
characteristics would increase the probability of setting an ESG-linked compensation.
Applying a pooled OLS regression model and a logistic model to our sample of 411 firm-year
observations of Swedish listed firms from 2019 to 2021 the two hypotheses were confirmed.
The results suggest that ESG performance is improved by having an ESG-linked
compensation contract. Furthermore, board characteristics influence the setting of ESGlinked
compensation where board cultural diversity, board size and two-tier board structure
has a positive relationship with the setting of ESG-linked compensation.
Degree
Master 2-years
Other description
Msc in Accounting and Financial Management
Collections
View/ Open
Date
2023-07-03Author
Aliti, Naile
Wen, Zhaoyang
Keywords
ESG-linked compensation
ESG performance
corporate governance
stakeholder welfare
Series/Report no.
2023:157
Language
eng