Executive Compensation and ESG Performance

This paper empirically examines the nexus between executive compensation and environmental, social, and governance (ESG) performance, focusing on the role of executive incentives in driving sustainable business practices. The purpose is to assess whether ESG performance is linked to executive compensation structures, particularly long-term incentives, in publicly traded firms. The analysis covers ten years from 2014 to 2023, utilizing data from Nigeria firms across eleven sectors. The methodology employed involves a panel data analysis using fixed and random effects models, incorporating financial control variables to isolate the impact of ESG metrics on executive pay. ESG performance is measured through composite indices derived from sustainability ratings, while the compensation variable is directors' remuneration. The findings reveal a positive relationship between executive compensation and ESG performance, particularly in firms with strong governance frameworks. Firms with better ESG scores tend to reward their executives with higher compensation, indicating that sustainable practices are becoming integral to executive compensation packages. This study's originality lies in its focus on the interplay between executive compensation design and ESG performance over a decade-long period, offering insights into how firms are aligning executive rewards with sustainable goals. The findings contribute to the literature on corporate governance by highlighting the importance of executive compensation in promoting ESG performance.