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Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International

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Publication Date

Spring 2022




Stanford Law School




The hottest topic in corporate governance circles today involves company commitments to and pursuit of ESG (environmental, social, and governance) initiatives in addition to the traditional pursuit of profits. One facet of this debate has to do with how to motivate executives to pursue ESG goals. Increasingly, companies tie executive pay to ESG performance, although even strong ESG advocates debate the advisability of doing so. This Article joins the fray by closely examining ESG-based CEO pay arrangements at a subset of companies with leadership positions on the Business Roundtable, an industry trade group that embraced ESG in a 2019 statement of corporate purpose. The primary takeaway of this analysis is that in almost all cases, explicit, non-discretionary ESG incentives are economically insignificant relative to executives’ incentives to maximize share value arising from shares owned outright and unvested or unexercised equity-based compensation. These findings suggest that either ESG-based pay arrangements at these firms are window dressing or that the directors making these compensation decisions do not subscribe to conventional thinking on incentive creation.

To be sure, at all but one of these companies, explicit, non-discretionary ESG incentives were incorporated only in annual bonus plans. One sample company – Duke Energy – tied CEO equity pay to ESG performance and in so doing created a meaningful link between pay and ESG performance. While this approach could be seen as a roadmap for those seeking meaningful ESG-based pay incentives, this Article concludes by questioning the wisdom of this approach, joining the cautionary camp in the normative debate.


Updated with published version of paper on 10/6/22

Working paper available on SSRN

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Working paper available on SSRN

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