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The Effect of Environmental, Social, and Governance Pillars on CEO Compensation: Evidence From US‐Listed Companies

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  • Chi‐Jui Huang
  • Tser‐Yieth Chen
  • Chia‐Wu Lu
  • Chien Huang
  • Hsiang‐Lin Chih

Abstract

This study's examination of how a company's ESG performance affects CEO compensation is driven by the increasing global emphasis on sustainable development and corporate social responsibility. This is reflected in the importance of stakeholder desire to incorporate environmental protection and social responsibility into top‐level corporate decision‐making. The present study explores the role of the overall impacts of CSR/ESG and individual ESG pillars in executive compensation, including total compensation, equity‐based compensation, and cash‐based compensation. The study sample consists of 8312 observations of US‐listed companies from 2003 to 2021. The results indicate that overall sustainability performance significantly impacts executive total and equity‐based compensation, aligning with stakeholder theory. We disintegrate CSR/ESG and find that environmental and corporate governance performance positively correlates with executive compensation. However, social performance has a significant negative impact, which aligns with equity theory. Companies with higher social performance tend to narrow the compensation gap between executives and employees, avoiding significant pay gaps that could disrupt internal harmony and collaboration within the organization. We are the first literature to interconnect individual ESG aspects and corporate CEO compensation levels and then make a specific contribution to the literature on corporate ESG performance affecting the pattern of CEO compensation. Our findings can help policymakers improve CEO compensation structures to increase sustainability.

Suggested Citation

  • Chi‐Jui Huang & Tser‐Yieth Chen & Chia‐Wu Lu & Chien Huang & Hsiang‐Lin Chih, 2025. "The Effect of Environmental, Social, and Governance Pillars on CEO Compensation: Evidence From US‐Listed Companies," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(3), pages 4128-4146, June.
    • Handle: RePEc:wly:sustdv:v:33:y:2025:i:3:p:4128-4146
    DOI: 10.1002/sd.3344
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