ESG-based remuneration in the wave of sustainability

Longjie Lu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

By investigating ESG-based remuneration in the UK FTSE 350 companies, this article finds that in practice, ESG-based remuneration may depart from its expected role in promoting corporate sustainability, whereas being adopted as a tactic for impression management or managerial rent extraction. Due to the unmeasurable effects of most ESG factors on shareholder value and their subjective nature, ESG-based remuneration is vulnerable to exploitation for symbolic and self-serving purposes. For companies aiming to promote long-term shareholder value, extending the assessment period of financial performance is a less costly and risky option compared to ESG-based remuneration. Differently, for companies oriented by a stakeholder purpose, ESG-based remuneration may play a part in incentivising executives to achieve plural stakeholder interests. To mitigate the risk of exploitation, this article proposes rule tightening in the current disclosure and monitoring frameworks for executive remuneration.

Original languageEnglish
Pages (from-to)1-43
JournalJournal of Corporate Law Studies
Early online date15 Sept 2023
DOIs
Publication statusE-pub ahead of print - 15 Sept 2023

Keywords / Materials (for Non-textual outputs)

  • corporate sustainability
  • enlightened shareholder value
  • ESG-based remuneration
  • incentives
  • stakeholder interests

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