The moderating role of ESG disclosure scores in determining the impact of firm performance on CEO pay: a dynamic panel approach

Abstract

This paper aims to empirically examine the moderating role of ESG disclosure while determining performance-based CEO pay. The compensation pay given to the CEOs must be linked to corporate sustainability so as to motivate them to act towards non-economic goals vis-à-vis earning profits. A total of 67 companies listed in the NSE Nifty 100 ESG index spanning six years from 2014 to 2019 have been taken as the panel data sample. As a baseline methodology, the PCSE model is applied and further two-step system GMM model has been considered for robustness check. The findings reveal that ESG disclosure scores show a significant positive effect in moderating the CEO pay-performance relationship. Stand-alone ESG measures indicate that except for social disclosure scores, all the other indicators depict a significant impact in determining the effect of firm performance on CEO pay. This study implies consideration of non-financial performance measures while determining CEO Pay.