ESG Performance and Board of Directors Compensation: A European Perspective

While the literature has previously investigated CEO compensation, board of director compensation has recently gained attention in scholarly works. Yet, board compensation and ESG performance have not been considered. Therefore, the purpose of this chapter is to explore whether there is an association between ESG performance and the compensation of the board of directors. Data from a sample of 2,499 listed European corporations have been statistically analyzed. The results show evidence that ESG performance is associated with board compensation. Firms with higher ESG performance tend to exhibit higher compensation for their board of directors. Following the stakeholder theory, this study highlights the importance of incorporating ESG metrics in the board members’ compensation plans and responsibilities to ensure sustainable long-term wealth for all stakeholders. At the same time, the corporation’s board compensation package must be carefully designed and incorporated into the corporate policy under the premise of reasonableness.Corporate social performance (CSP) is found to be positively associated with prior financial performance, supporting the theory that slack resource availability and CSP are positively related. CSP is also found to be positively associated with future financial performance, supporting the theory that good management and CSP are positively related (Waddock and Graves, 1997, p. 303).Around the globe, a third of all professionally managed assets, or roughly $30 trillion, are now subject to ESG criteria (Howad-Grenville, 2021, para. 1). Robust ESG and impact measures can help us keep score, and, when necessary, make course corrections. Ultimately, however, no matter how and what we measure, we need to act our way into greater understanding, insight, and even purpose (para. 23).