Are ESG performance-based incentives a panacea or a smokescreen for excess compensation?

Abstract

Purpose This paper aims to examine how the use of environmental, social and governance (ESG) incentives intersects with top management power and various corporate governance mechanisms to affect excess annual cash bonus compensation. Design/methodology/approach The authors use a novel artificial intelligence (AI) technique to obtain data about ESG incentives use by firms in the S&P 500. The authors test the hypotheses with an endogenous treatment-regression and a contrast test. Findings When the top management team has power and uses ESG incentives, there is a 32% reduction in excess annual cash bonuses implying ESG incentives are an effective corporate governance tool. However, nuanced analyses reveal that when powerful management teams with ESG incentives are from environmentally sensitive industries, have a corporate social responsibility (CSR) committee or have long-term view institutional shareholders, they derive excess bonuses. Practical implications Stakeholders will better understand management’s motivations for the inclusion of ESG incentives in executive compensation contracts and be able to identify situations which require closer scrutiny. Social implications Given the increased popularity of ESG incentives, society, regulators, boards of directors and management teams will be interested in better understanding when these incentives might be effective and when they might be abused. Originality/value To the best of the authors’ knowledge, this study is the first to examine the use of ESG incentives in relation to excess pay. The authors contribute to both the CSR and executive compensation literatures. The work also uses a new methodological technique using AI to gather difficult-to-obtain data, opening new avenues for research.

Do high-performance Employee influenced Work Motivation and Compensation in a Corporations?

“…These findings support the findings of a study by Lu, Kang, and Tseng [34], which indicates that offering competitive pay would have an effect on raising employee performance. According to Keddie and Magnan [35], pay is crucial in fostering an employee's commitment to their task. According to research by Fauzan [12]; Chouaibi, Rossi & Zouari [36], the findings show that compensation can foster or increase employee needs and that it must be given in accordance with the proper procedure to prevent employee inequality.Additionally, it was shown that pay and job motivation had a significant impact on employees' performance.…”