Decision-Making and Incentives in ESG-Oriented Firms: Impacts on Executive Pay-for-Performance Sensitivity

Rongyan Zhang; Liu Yang; Jiafu Su

doi:10.31181/dmame7220241388

Authors

Rongyan Zhang School of Business Administration, South China University of Technology, Guangzhou 510640, China & Department of Finance, Guangxi University, Nanning 530004, China https://orcid.org/0000-0001-8001-1276
Liu Yang School of International Education, Guangxi University of Finance and Economics, Nanning 530003, China https://orcid.org/0000-0001-8001-1276
Jiafu Su International College, Krirk University, Bangkok 10220, Thailand https://orcid.org/0000-0001-8001-1276

DOI:

https://doi.org/10.31181/dmame7220241388

Keywords:

ESG Performance, Executive Pay-for-Performance Sensitivity, Information Transparency, Excessive Compensation

Abstract

The adoption of ESG principles plays a crucial role in advancing the high-quality development of enterprises. This research examines the influence of ESG implementation on the sensitivity of executive compensation to performance, alongside the underlying mechanisms of their interaction. The findings demonstrate that improved ESG performance is significantly linked to a heightened alignment between executive remuneration and organisational performance. ESG initiatives appear to positively influence the structuring of compensation agreements. Further analysis shows that ESG practices enhance this pay-for-performance sensitivity by increasing corporate transparency and mitigating excessive executive pay. The heterogeneity analysis indicates that the positive impact of ESG on executive compensation sensitivity is more pronounced in non-state-owned enterprises, firms operating within less transparent information environments, and those characterised by labour-intensive operations. This research deepens the understanding of the microeconomic implications of ESG adoption and offers theoretical support for both regulatory ESG frameworks and corporate engagement in sustainable practices.

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