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EGS metrics in CEO compensation: incentives and sustainability in the major EU economies

Author

Listed:
  • Federico Fornasari

    (Bank of Italy)

  • Nicolò Galasso

    (Ca' Foscari University of Venice)

Abstract

In recent years, ESG (environmental, social, and governance) metrics have been incorporated into CEOs' compensation plans, sparking a debate about their potential to enhance sustainability and the risks they pose to firms' financial performance. This paper provides a comparative analysis of the adoption of ESG-linked executive compensation in listed companies across the major EU economies—France, Germany, Italy and Spain—between 2018 and 2022. Using a hand-collected dataset, this paper illustrates how ESG-linked remuneration has become widespread, its proportion in terms of total compensation, the metrics it encompasses and how it is structured. Moreover, the paper shows that ESG (as well as financial) targets are almost always achieved by CEOs and that corporate economic performance has not worsened as ESG-related pay has increased. The analysis suggests that cherry-picking targets and greenwashing may be prevalent, casting doubt on the effectiveness of CEOs' pay in fostering sustainability, while this governance structure has not hindered economic performance so far.

Suggested Citation

  • Federico Fornasari & Nicolò Galasso, 2025. "EGS metrics in CEO compensation: incentives and sustainability in the major EU economies," Questioni di Economia e Finanza (Occasional Papers) 917, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_917_25
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2025-0917/QEF_917_25.pdf
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    More about this item

    Keywords

    CEO remuneration; ESG; corporate governance;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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