Advancing Understanding of ESG Disclosure and Executive Compensation Relationships : A Novel Empirical Study in India

This study explores the link between ESG performance metrics (non-financial goals) and executive compensation. Using a sample of top listed firms in India from 2007 to 2021, we examine the impact of ESG score on executive compensation controlling for various firm-level characteristics. Consistent with the agency conflict hypothesis, we show that higher ESG disclosure is associated with higher executive compensation. Subsample analyses show that business group-affiliated firms with higher ESG scores exhibit higher executive compensation than non-affiliated firms. Furthermore, environmentally sensitive firms with higher governance pillar scores have higher executive compensation. The results are robust to the instrumental variable technique and propensity score matching method. The outcomes of this research provide valuable insights for regulators, investors, employees, and other stakeholders in incorporating environmental, social, and governance (ESG) factors into long-term strategic decision-making processes within the context of executive compensation in India