Skip to main content
Log in

The ‘S’ in ESG and its moderating role in determining the performance-based CEO compensation

  • RESEARCH PAPER
  • Published:
Journal of Social and Economic Development Aims and scope Submit manuscript

Abstract

This paper aims to empirically examine the moderating role of the social disclosure aspect in determining the performance-based CEO pay. Further, we have also tested whether women directors on board and academic qualification of CEOs reinforce the effect of social scores while ascertaining the pay–performance relationship. Taking 67 companies listed in NSE Nifty 100 ESG Index spanning six years from 2014 to 2019, the PCSE model is applied as a baseline methodology. Our findings are also robust to results obtained in propensity score matching and two-step system GMM model methods. The results indicate that although overall ESG disclosures are consistently significant, the social disclosure scores can affect the compensation paid to the CEOs only in the case of gender-diverse boards. The pay– performance relationship remains unaffected by CEO’s academic degree, but is significant to the ownership structure and certain social-oriented policies employed by the firm.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Fig. 1

Similar content being viewed by others

Notes

  1. ESG stands for environmental, social and governance disclosure. It represents a framework to evaluate an organization’s operations and performance on many ethical and sustainable concerns.

  2. A CEO is the chief executive officer of the company who plays a substantial role in the functioning and management of the organization.

  3. CSR refers to the Corporate Social Responsibility activities carried out by the business.

  4. GLS—generalized least squares.

  5. FGLS—feasible generalized least squares.

References

  • Adams SM, Gupta A, Haughton DM, Leeth JD (2007). Gender differences in CEO compensation: evidence from the USA. Women in Management Review.

  • Adams RB, Ferreira D (2009) Women in the boardroom and their impact on governance and performance. J Financ Econ 94(2):291–309

    Article  Google Scholar 

  • Adams RB, Funk P (2012) Beyond the glass ceiling: Does gender matter? Manage Sci 58(2):219–235

    Article  Google Scholar 

  • Ahmed A, Atif M, Gyapong E (2021) Boardroom gender diversity and CEO pay deviation: Australian evidence. Account Finance 61(2):3135–3170

    Article  Google Scholar 

  • Alazzani A, Hassanein A, Aljanadi Y (2017) Impact of gender diversity on social and environmental performance: evidence from Malaysia Corporate Governance. Int J Business Soc. 17(2):266–283

    Google Scholar 

  • Arayssi M, Dah M, Jizi M (2016) Women on boards, sustainability reporting and firm performance. Sustain Account, Manage Policy J 7(3):376–401. https://doi.org/10.1108/SAMPJ-07-2015-0055

    Article  Google Scholar 

  • Arayssi M (2010). Market valuation of corporate reputation. In: Proceedings of the Business Research Symposium, American University of Sharjah, UAE.

  • Barrett M, Moores K (2009). Fostering women’s entrepreneurial leadership in family firms: Ten lessons.

  • Bear S, Rahman N, Post C (2010) The impact of board diversity and gender composition on corporate social responsibility and firm reputation. J Bus Ethics 97(2):207–221

    Article  Google Scholar 

  • Benkraiem R et al (2017) Board independence, gender diversity and CEO compensation. Corporate Gov (Bingley) 17(5):845–860. https://doi.org/10.1108/CG-02-2017-0027

    Article  Google Scholar 

  • Bernardi RA, Arnold DF (1997) An examination of moral development within public accounting by gender, staff level, and firm. Contemp Account Res 14(4):653–668

    Article  Google Scholar 

  • Bird B, Brush C (2002) A gendered perspective on organizational creation. Entrep Theory Pract 26(3):41–65

    Article  Google Scholar 

  • Borjas GJ (2005). Labor Economics (3rd ed.). McGraw-Hill Irwin.

  • Branco MC, Rodrigues LL (2008) Factors influencing social responsibility disclosure by Portuguese companies. J Bus Ethics 83(4):685–701

    Article  Google Scholar 

  • Bugeja M, Matolcsy Z, Spiropoulos H (2016) The association between gender-diverse compensation committees and CEO compensation. J Bus Ethics 139(2):375–390

    Article  Google Scholar 

  • Burke RJ (1997) Women on corporate boards of directors: a needed resource. J Bus Ethics 16(9):909–915

    Article  Google Scholar 

  • Campbell K, Mínguez-Vera A (2008) Gender Diversity in the Boardroom and Firm Financial Performance. J Bus Ethics 83(3):435–451

    Article  Google Scholar 

  • Carlson R (1972) Understanding women: implications for personality theory and research. J Soc Issues 28(2):17–32

    Article  Google Scholar 

  • Carroll AB (1979) A three-dimensional conceptual model of corporate social performance. Acad Manag Rev 4:497–505

    Article  Google Scholar 

  • Carter DA, D’Souza FP, Simkins BJ, Simpson WG (2010) The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Gov: Int Rev 18:396–414

    Article  Google Scholar 

  • Chadwick IC, Dawson A (2018) Women leaders and firm performance in family businesses: an examination of financial and nonfinancial outcomes. J Fam Bus Strat 9(4):238–249. https://doi.org/10.1016/j.jfbs.2018.10.002

    Article  Google Scholar 

  • Chauhan Y, Dey DK (2017) Do female directors really add value in Indian firms? J Multinatl Financ Manag 42:24–36

    Article  Google Scholar 

  • Chen J, Ezzamel M, Cai Z (2011) Managerial power theory, tournament theory, and executive pay in China. J Corp Finan 17(4):1176–1199

    Article  Google Scholar 

  • Daily CM, Dalton DR (2003) Women in the boardroom: a business imperative. J Bus Strategy 24(5):8–9

    Article  Google Scholar 

  • De Dreu CK, West MA (2001) Minority dissent and team innovation: the importance of participation in decision making. J Appl Psychol 86(6):1191–1201

    Article  Google Scholar 

  • Delgado-Márquez L, de Castro J, Justo R (2017) The boundary conditions of gender diversity in top teams. Manage Res 15(4):425–442

    Google Scholar 

  • Dezsö CL, Ross DG (2012) Does female representation in top management improve firm performance? A panel data investigation. Strateg Manag J 33(9):1072–1089

    Article  Google Scholar 

  • Eagly AH, Crowley M (1986) Gender and helping behavior: a meta-analytic review of the social psychological literature. Psychol Bull 100(3):283–308

    Article  Google Scholar 

  • Erhardt NL, Werbel JD, Shrader CB (2003) Board of director diversity and firm financial performance. Corporate Gov: Int Rev 11:102–111

    Article  Google Scholar 

  • Estélyi KS, Nisar TM (2016) Diverse boards: why do firms get foreign nationals on their boards? J Corp Finan 39:174–192

    Article  Google Scholar 

  • Fahad P, Nidheesh KB (2020). Determinants of CSR disclosure: an evidence from India. J Indian Business Res.

  • Fleisher BM, Hu Y, Li H, Kim S (2011) Economic transition, higher education and worker productivity in China. J Dev Econ 94(1):86–94

    Article  Google Scholar 

  • Gao SS, Heravi S, Xiao JZ (2005) Determinants of corporate social and environmental reporting in Hong Kong: a research note. Account Forum 29(2):233–242

    Article  Google Scholar 

  • Harrison J, Freeman R (1999) Stakeholders, social responsibility, and performance: empirical evidence and theoretical perspectives. Acad Manag J 42:479–487

    Article  Google Scholar 

  • Hoechle D (2007) Robust standard errors for panel regressions with cross-sectional dependence. Stand Genomic Sci 7(3):281–312

    Google Scholar 

  • Huse M, Solberg AG (2006). Gender‐related boardroom dynamics: How Scandinavian women make and can make contributions on corporate boards. Women in Management Review.

  • Ibrahim N, Angelidis J, Tomic I (2009) Managers’ attitudes toward codes of ethics: are there gender differences? J Bus Ethics 90:343–353

    Article  Google Scholar 

  • Isidro H, Sobral M (2015) The effects of women on corporate boards on firm value, financial performance, and ethical and social compliance. J Bus Ethics 132(1):1–19

    Article  Google Scholar 

  • Jadiyappa N, Jyothi P, Sireesha B, Hickman LE (2019) CEO gender, firm performance and agency costs: Evidence from India. J Econom Stud 46(2):482–495

    Article  Google Scholar 

  • Jalbert T, Furumo K, Jalbert M (2011) Does educational background effect CEO compensation and firm performance. J Appl Bus Res 27(1):15–39

    Article  Google Scholar 

  • Krishnan HA, Park D (2005) A few good women—on top management teams. J Bus Res 58(12):1712–1720

    Article  Google Scholar 

  • Kyaw K, Olugbode M, Petracci B (2017) Can board gender diversity promote corporate social performance? Corporate Gov Int J Business Soc 17(5):789–802

    Article  Google Scholar 

  • Lam KCK, McGuinness PB, Vieito JP (2013) CEO gender, executive compensation and firm performance in Chinese-listed enterprises. Pacific Basin Finance J 21(1):1136–1159. https://doi.org/10.1016/j.pacfin.2012.08.006

    Article  Google Scholar 

  • Laszlo C (2003). The sustainable company: how to create lasting value through social and environmental performance. Island Press.

  • Liu C (2018) Are women greener? Corporate gender diversity and environmental violations. J Corp Finan 52:118–142. https://doi.org/10.1016/j.jcorpfin.2018.08.004

    Article  Google Scholar 

  • Lucas-Pérez ME, Mínguez-Vera A, Baixauli-Soler JS, Martín-Ugedo JF, Sánchez-Marín G (2015) Women on the board and managers’ pay: evidence from Spain. J Bus Ethics 129(2):265–280

    Article  Google Scholar 

  • Lys T, Naughton JP, Wang C (2015) Signaling through corporate accountability reporting. J Account Econ 60(1):56–72

    Article  Google Scholar 

  • Merridee LB, McConomy JB (2010) Gendered interactions in corporate annual report photographs. Gender Manage: Int J 25(2):119–136

    Article  Google Scholar 

  • Miliken FJ, Martins IL (1996) Searching for common threads: understanding the multiple effects of diversity in organizational groups. Acad Manag J 21(2):402–433

    Google Scholar 

  • Miller D, Le Breton-Miller I (2005) Management insights from great and struggling family businesses. Long Range Plan 38(6):517–530

    Article  Google Scholar 

  • Owen AL, Temesvary J (2019) CEO compensation, pay inequality, and the gender diversity of bank board of directors. Financ Res Lett 30:276–279

    Article  Google Scholar 

  • Parsa S, Deng LX (2008) Capital markets’ reactions to social information announcements. Int J Account Finance 1(1):107–120

    Article  Google Scholar 

  • Patnaik P, Suar D (2020) Does corporate governance affect CEO compensation in Indian manufacturing firms? J Public Aff 20(3):1–12

    Article  Google Scholar 

  • Post C, Rahman N, Rubow E (2011) Green governance: Boards of directors’ composition and environmental corporate social responsibility. Bus Soc 50(1):189–223

    Article  Google Scholar 

  • Rath C, Deo M (2023) The role of GHG emissions and energy consumption disclosures in determining performance-based CEO compensation: a panel data approach. Rev Pacific Basin Financial Markets Policies (RPBFMP) 26(02):1–31

    Google Scholar 

  • Roberts RW (1992) Determinants of corporate social responsibility disclosure: an application of stakeholder theory. Acc Organ Soc 17(6):595–612

    Article  Google Scholar 

  • Ryan L (2017) Sex differences through a neuroscience lens: implications for business ethics. J Bus Ethics 144(4):771–782

    Article  Google Scholar 

  • Saini N, Singhania M (2019) Performance relevance of environmental and social disclosures: the role of foreign ownership. Benchmarking 26(6):1845–1873. https://doi.org/10.1108/BIJ-04-2018-0114

    Article  Google Scholar 

  • Sharma D, Bhattacharya S, Thukral S (2019) Resource-based view on corporate sustainable financial reporting and firm performance: evidences from emerging Indian economy. Int J Business Governance Ethics 13(4):323–344

    Article  Google Scholar 

  • Singh V, Terjesen S, Vinnicombe S (2008) Newly appointed directors in the boardroom: how do women and men differ? Eur Manag J 26(1):48–58

    Article  Google Scholar 

  • Stahl GK, De Luque MS (2014) Antecedents of responsible leader behavior: a research synthesis, conceptual framework and agenda for future research. Acad Manage Perspect 28(3):235–254

    Article  Google Scholar 

  • Stuart S (2008) The US board index. Spencer Stuart, New York

    Google Scholar 

  • Terjesen S, Sealy R, Singh V (2009) Women directors on corporate boards: a review and research agenda. Corporate Governance: Int Rev 17(3):320–337

    Article  Google Scholar 

  • Terjesen S, Couto EB, Francisco PM (2016) Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity. J Manage Governance 20(3):447–483

    Article  Google Scholar 

  • Thangavelu SM, Venkatachalam A (2021) Global financial crisis and firm activities in global value chain: case of Vietnamese firms. J Social Econom Dev 23:505–520

    Article  Google Scholar 

  • Usman M, Zhang J, Farooq MU, Makki MAM, Dong N (2018) Female directors and CEO power. Econ Lett 165:44–47

    Article  Google Scholar 

  • Walls JL, Berrone P, Phan PH (2012) Corporate governance and environmental performance: is there really a link? Strateg Manag J 33(8):885–913

    Article  Google Scholar 

  • Westphal JD, Bednar MK (2005) Pluralistic ignorance in corporate boards and firms’ strategic persistence in response to low firm performance. Adm Sci Q 50(2):262–298

    Article  Google Scholar 

  • Wong EM, Ormiston ME, Tetlock PE (2011) The effects of top management team integrative complexity and decentralized decision making on corporate social performance. Acad Manag J 54(6):1207–1228

    Article  Google Scholar 

Download references

Funding

The author has no relevant financial or non-financial interests to disclose.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Chetna Rath.

Ethics declarations

Conflict of interest

The author has no competing interests to declare that are relevant to the content of this article.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendix

Appendix

A. Propensity score matching—application of probit regression model

Dependent variable: Log(CEOComp)

Model 1

Model 2

Model 3

Model 4

Model 5

Ln(ESG_Score)

 

 − 1.168*** (0.334)

 − 1.261*** (0.385)

 − 1.108*** (0.336)

 − 1.412*** (0.358)

Ln(Soc_Score)

  

0.170

  

(0.344)

Ln(Blau Index)

   

0.786**

 

(0.311)

Ln(Soc_Score* Blau Index)

    

0.497***

(0.224)

ROA

3.389**

3.478**

3.363*

3.813**

3.300*

(1.652)

(1.767)

(1.765)

(1.819)

(1.745)

ROE

 − 0.018** (0.008)

 − 0.019* (0.010)

 − 0.019* (0.010)

 − 0.022** (0.010)

 − 0.019** (0.009)

Tobin’s Q

 − 0.040** (0.019)

 − 0.053** (0.021)

 − 0.053** (0.021)

 − 0.047** (0.021)

 − 0.048** (0.021)

Returns

0.023

0.030

0.034

0.037

0.047

(0.058)

(0.057)

(0.058)

(0.062)

(0.061)

F_Size

 − 0.207

0.199

0.206

0.286

0.279

(0.262)

(0.291)

(0.292)

(0.296)

(0.298)

LEV

1.349

0.142

0.049

0.130

 − 0.167

(1.076)

(1.139)

(1.154)

(1.176)

(1.169)

Ownership

0.428*

0.521*

0.541*

0.465**

0.544**

 

(0.227)

* (0.231)

* (0.234)

(0.233)

(0.231)

M_to_B

0.000

0.000

0.000

0.000

0.000

(0.000)

(0.000)

(0.000)

(0.000)

(0.001)

ACAD_D

 − 0.323**

 − 0.306*

 − 0.308*

 − 0.298*

 − 0.307*

(0.158)

(0.162)

(0.162)

(0.166)

(0.165)

ADCD_S

0.262

0.122

0.124

0.037

0.073

(0.204)

(0.213)

(0.213)

(0.220)

(0.216)

B_Ethics

0.419*

0.517**

0.534**

0.592**

0.608**

(0.254)

(0.257)

(0.259)

(0.265)

(0.262)

Emp_CSR

0.291

0.368

0.352

0.375

0.325

(0.395)

(0.395)

(0.396)

(0.395)

(0.394)

Eq_Oppo

0.772**

0.812**

0.807**

0.794**

0.787**

(0.320)

(0.321)

(0.321)

(0.328)

(0.326)

UN_GC

 − 0.280

 − 0.162

 − 0.179

 − 0.203

 − 0.234

( 0.255)

(0.259)

(0.261)

(0.265)

(0.265)

H_Rights

 − 0.156

0.449

0.395

0.404

0.261

(0.295)

(0.327)

(0.345)

(0.331)

(0.339)

IND_D

0.034**

0.020

0.021

 − 0.0002

0.009

(0.013)

(0.065)

(0.065)

(0 0.067)

(0.065)

Constant

1.652

3.641**

3.360*

4.417**

3.323*

(1.498)

(1.669)

(1.765)

(1.728)

(1.709)

LR Test (chi-square)

60.47

68.79

69.04

75.68

73.92

(0.000)

(0.000)

(0.000)

(0.000)

(0.000)

Pseudo R2

0.2030

0.2309

0.2318

0.2541

0.2482

No. of Observations

387

387

387

387

387

  1. *significance at 10%, ** significance at 5%, *** significance at 1%

The results of propensity score matching model are reported in the table. Below the coefficients are the standard errors reported in parentheses. The dependent variable is Log(CEOComp) [CEO compensation] and the independent variables are Ln(ESG_Score) [ESG disclosure score], Ln(Soc_Score) [social disclosure score], Ln(Blau Index) [Blau Index], Ln(Soc_Score* Blau Index) [social disclosure score * Blau Index], ROA [return on assets], ROE [return on equity], Tobin’s Q [Tobin’s Q],Returns[stock return to investors], F_Size [firm size], LEV [leverage], Ownership[ownership], ], M_to_B [market-to-book ratio],ACAD_D [academic degree],ADCD_S[academic specialization], B_Ethics[business ethics policy], Emp_CSR [employee CSR policy],Eq_Oppo[equal opportunity policy], UN_GC[United Nations global compact policy], H_Rights[human rights policy.].

B. Two-step system GMM results

Dependent variable: Log(CEOComp)

Model 1

Model 2

Model 3

Model 4

Model 5

CEOCompit-1

0.859*** (0.057)

0.841*** (0.051)

0.821*** (0.050)

0.814*** (0.056)

0.812*** (0.056)

Ln(ESG_Score)

 

0.101***

0.100**

0.106***

0.095***

 

(0 033)

(0.049)

(0.033)

(0.033)

Ln(Soc_Score)

  

0.001

  
  

(0.054)

  

Ln(Blau Index)

   

0.279** (0.112)

 

Ln(Soc_Score* Blau Index)

    

0.078*** (0.028)

ROA

 − 0.090

 − 0.150

 − 0.190

 − 0.148

 − 0.144

(0. 303)

(0. 286)

(0.290)

(0.286)

(0.287)

ROE

0.000

0.000*

0.001*

0.001*

0.001*

(0.000)

(0.000)

(0.000)

(0 0.000)

(0.000)

Tobin’s Q

 − 0.003

 − 0.001

 − 0.001

0.0001

 − 0.0001

(0.002)

(0.002)

(0.002)

(0.003)

(0.003)

Returns

0.030*

0.026

0.030

0.033**

0.032*

(0.016)

(0.015)

(0.016)

(0.016)

(0.016)

F_Size

 − 0.020

 − 0.038

 − 0.038

 − 0.029

 − 0.028

(0.026)

(0.034)

(0.034)

(0.034)

(0.035)

LEV

0.031

0.044

0.013

0.068

0.062

(0.173)

(0.187)

(0.186)

(0.193)

(0.194)

Ownership

0.067(0.052)

0 0.078(0.048)

0.095** (0.047)

0.091* (0.051)

0.095* (0.051)

M_to_B

0.000** (0.000)

0.000** (0.000)

0.000* (0.000)

0.000* (0.000)

0.000* (0.000)

ACAD_D

0.080*** (0.019)

0.070*** (0 0.021)

0.067*** (0.021)

0.077*** (0.022)

0.075*** (0.022)

ADCD_S

 − 0.049** (0.023)

 − 0.067*** (0. 023)

 − 0.070*** (0.023)

 − 0.072*** (0.025)

 − 0.071*** (0.024)

B_Ethics

0.040

0.041

0.053**

0.049

0.053*

(0. 033)

(0.029)

(0.026)

(0.030)

(0.030)

Emp_CSR

 − 0.047

 − 0.067

 − 0.044

 − 0.064

 − 0.064

(0.045)

(0.046)

(0.046)

(0.046)

(0.046)

Eq_Oppo

0.002

0.009

0.003

0.0001

 − 0.002

(0.032)

(0.029)

(0.029)

(0.031)

(0.030)

UN_GC

0.012

 − 0.011

 − 0.015

 − 0.017

 − 0.020

(0.024)

(0.023)

(0.023)

(0.023)

(0.023)

H_Rights

 − 0.073*** (0.025)

 − 0.107*** (0.028)

 − 0.113*** (0.029)

 − 0.102*** (0.029)

 − 0.106*** (0.029)

Constant

1.042** (0. 403)

0 0.998*** (0. 361)

1.159*** (0.381)

1.034*** (0.383)

1.079*** (0.386)

Hansen Test (p-value)

34.44

35.55

36.08

33.32

33.38

(0.154)

(0.126)

(0.113)

(0.187)

(0.185)

Sargan Test (p-value)

31.51

31.51

31.46

30.76

30.69

(0.251)

(0.251)

(0.253)

(0.281)

(0.284)

F-Statistics (p-value)

1008.95

762.75

682.25

675.35

652.99

(0.000)

(0.000)

(0.000)

(0.000)

(0.000)

AR(1)

0.003

0.003

0.003

0.003

0.003

AR(2)

0.314

0.318

0.332

0.356

0.351

No. of instruments

44

45

46

46

46

No. of groups

67

67

67

67

67

No. of firm-year observations

325

325

325

325

325

  1. *significance at 10%, ** significance at 5%, *** significance at 1%

The results of two-step system model are reported in the table. Below the coefficients are the standard errors reported in parentheses. The dependent variable is Log(CEOComp) [CEO compensation], and the independent variables are Ln(ESG_Score) [ESG disclosure score], Ln(Soc_Score) [social disclosure score], Ln(Blau Index) [Blau Index], Ln(Soc_Score* Blau Index) [social disclosure score * Blau Index], ROA [return on assets], ROE [return on equity], Tobin’s Q [Tobin’s Q], Returns[stock return to investors], F_Size [firm size], LEV [leverage], Ownership [ownership], M_to_B [market-to-book ratio], ACAD_D [academic degree], ADCD_S [academic specialization], B_Ethics [business ethics policy], Emp_CSR [employee CSR policy], Eq_Oppo [equal opportunity policy], UN_GC[United Nations global compact policy], H_Rights [human rights policy.].

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Rath, C., Deo, M. The ‘S’ in ESG and its moderating role in determining the performance-based CEO compensation. J. Soc. Econ. Dev. 26, 309–332 (2024). https://doi.org/10.1007/s40847-023-00310-8

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s40847-023-00310-8

Keywords

Navigation