Abstract
This paper aims to empirically examine the moderating role of the social disclosure aspect in determining the performance-based CEO pay. Further, we have also tested whether women directors on board and academic qualification of CEOs reinforce the effect of social scores while ascertaining the pay–performance relationship. Taking 67 companies listed in NSE Nifty 100 ESG Index spanning six years from 2014 to 2019, the PCSE model is applied as a baseline methodology. Our findings are also robust to results obtained in propensity score matching and two-step system GMM model methods. The results indicate that although overall ESG disclosures are consistently significant, the social disclosure scores can affect the compensation paid to the CEOs only in the case of gender-diverse boards. The pay– performance relationship remains unaffected by CEO’s academic degree, but is significant to the ownership structure and certain social-oriented policies employed by the firm.
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Notes
ESG stands for environmental, social and governance disclosure. It represents a framework to evaluate an organization’s operations and performance on many ethical and sustainable concerns.
A CEO is the chief executive officer of the company who plays a substantial role in the functioning and management of the organization.
CSR refers to the Corporate Social Responsibility activities carried out by the business.
GLS—generalized least squares.
FGLS—feasible generalized least squares.
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Appendix
Appendix
A. Propensity score matching—application of probit regression model
Dependent variable: Log(CEOComp) | Model 1 | Model 2 | Model 3 | Model 4 | Model 5 |
|---|---|---|---|---|---|
Ln(ESG_Score) | − 1.168*** (0.334) | − 1.261*** (0.385) | − 1.108*** (0.336) | − 1.412*** (0.358) | |
Ln(Soc_Score) | 0.170 | ||||
(0.344) | |||||
Ln(Blau Index) | 0.786** | ||||
(0.311) | |||||
Ln(Soc_Score* Blau Index) | 0.497*** | ||||
(0.224) | |||||
ROA | 3.389** | 3.478** | 3.363* | 3.813** | 3.300* |
(1.652) | (1.767) | (1.765) | (1.819) | (1.745) | |
ROE | − 0.018** (0.008) | − 0.019* (0.010) | − 0.019* (0.010) | − 0.022** (0.010) | − 0.019** (0.009) |
Tobin’s Q | − 0.040** (0.019) | − 0.053** (0.021) | − 0.053** (0.021) | − 0.047** (0.021) | − 0.048** (0.021) |
Returns | 0.023 | 0.030 | 0.034 | 0.037 | 0.047 |
(0.058) | (0.057) | (0.058) | (0.062) | (0.061) | |
F_Size | − 0.207 | 0.199 | 0.206 | 0.286 | 0.279 |
(0.262) | (0.291) | (0.292) | (0.296) | (0.298) | |
LEV | 1.349 | 0.142 | 0.049 | 0.130 | − 0.167 |
(1.076) | (1.139) | (1.154) | (1.176) | (1.169) | |
Ownership | 0.428* | 0.521* | 0.541* | 0.465** | 0.544** |
(0.227) | * (0.231) | * (0.234) | (0.233) | (0.231) | |
M_to_B | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 |
(0.000) | (0.000) | (0.000) | (0.000) | (0.001) | |
ACAD_D | − 0.323** | − 0.306* | − 0.308* | − 0.298* | − 0.307* |
(0.158) | (0.162) | (0.162) | (0.166) | (0.165) | |
ADCD_S | 0.262 | 0.122 | 0.124 | 0.037 | 0.073 |
(0.204) | (0.213) | (0.213) | (0.220) | (0.216) | |
B_Ethics | 0.419* | 0.517** | 0.534** | 0.592** | 0.608** |
(0.254) | (0.257) | (0.259) | (0.265) | (0.262) | |
Emp_CSR | 0.291 | 0.368 | 0.352 | 0.375 | 0.325 |
(0.395) | (0.395) | (0.396) | (0.395) | (0.394) | |
Eq_Oppo | 0.772** | 0.812** | 0.807** | 0.794** | 0.787** |
(0.320) | (0.321) | (0.321) | (0.328) | (0.326) | |
UN_GC | − 0.280 | − 0.162 | − 0.179 | − 0.203 | − 0.234 |
( 0.255) | (0.259) | (0.261) | (0.265) | (0.265) | |
H_Rights | − 0.156 | 0.449 | 0.395 | 0.404 | 0.261 |
(0.295) | (0.327) | (0.345) | (0.331) | (0.339) | |
IND_D | 0.034** | 0.020 | 0.021 | − 0.0002 | 0.009 |
(0.013) | (0.065) | (0.065) | (0 0.067) | (0.065) | |
Constant | 1.652 | 3.641** | 3.360* | 4.417** | 3.323* |
(1.498) | (1.669) | (1.765) | (1.728) | (1.709) | |
LR Test (chi-square) | 60.47 | 68.79 | 69.04 | 75.68 | 73.92 |
(0.000) | (0.000) | (0.000) | (0.000) | (0.000) | |
Pseudo R2 | 0.2030 | 0.2309 | 0.2318 | 0.2541 | 0.2482 |
No. of Observations | 387 | 387 | 387 | 387 | 387 |
The results of propensity score matching model are reported in the table. Below the coefficients are the standard errors reported in parentheses. The dependent variable is Log(CEOComp) [CEO compensation] and the independent variables are Ln(ESG_Score) [ESG disclosure score], Ln(Soc_Score) [social disclosure score], Ln(Blau Index) [Blau Index], Ln(Soc_Score* Blau Index) [social disclosure score * Blau Index], ROA [return on assets], ROE [return on equity], Tobin’s Q [Tobin’s Q],Returns[stock return to investors], F_Size [firm size], LEV [leverage], Ownership[ownership], ], M_to_B [market-to-book ratio],ACAD_D [academic degree],ADCD_S[academic specialization], B_Ethics[business ethics policy], Emp_CSR [employee CSR policy],Eq_Oppo[equal opportunity policy], UN_GC[United Nations global compact policy], H_Rights[human rights policy.].
B. Two-step system GMM results
Dependent variable: Log(CEOComp) | Model 1 | Model 2 | Model 3 | Model 4 | Model 5 |
|---|---|---|---|---|---|
CEOCompit-1 | 0.859*** (0.057) | 0.841*** (0.051) | 0.821*** (0.050) | 0.814*** (0.056) | 0.812*** (0.056) |
Ln(ESG_Score) | 0.101*** | 0.100** | 0.106*** | 0.095*** | |
(0 033) | (0.049) | (0.033) | (0.033) | ||
Ln(Soc_Score) | 0.001 | ||||
(0.054) | |||||
Ln(Blau Index) | 0.279** (0.112) | ||||
Ln(Soc_Score* Blau Index) | 0.078*** (0.028) | ||||
ROA | − 0.090 | − 0.150 | − 0.190 | − 0.148 | − 0.144 |
(0. 303) | (0. 286) | (0.290) | (0.286) | (0.287) | |
ROE | 0.000 | 0.000* | 0.001* | 0.001* | 0.001* |
(0.000) | (0.000) | (0.000) | (0 0.000) | (0.000) | |
Tobin’s Q | − 0.003 | − 0.001 | − 0.001 | 0.0001 | − 0.0001 |
(0.002) | (0.002) | (0.002) | (0.003) | (0.003) | |
Returns | 0.030* | 0.026 | 0.030 | 0.033** | 0.032* |
(0.016) | (0.015) | (0.016) | (0.016) | (0.016) | |
F_Size | − 0.020 | − 0.038 | − 0.038 | − 0.029 | − 0.028 |
(0.026) | (0.034) | (0.034) | (0.034) | (0.035) | |
LEV | 0.031 | 0.044 | 0.013 | 0.068 | 0.062 |
(0.173) | (0.187) | (0.186) | (0.193) | (0.194) | |
Ownership | 0.067(0.052) | 0 0.078(0.048) | 0.095** (0.047) | 0.091* (0.051) | 0.095* (0.051) |
M_to_B | 0.000** (0.000) | 0.000** (0.000) | 0.000* (0.000) | 0.000* (0.000) | 0.000* (0.000) |
ACAD_D | 0.080*** (0.019) | 0.070*** (0 0.021) | 0.067*** (0.021) | 0.077*** (0.022) | 0.075*** (0.022) |
ADCD_S | − 0.049** (0.023) | − 0.067*** (0. 023) | − 0.070*** (0.023) | − 0.072*** (0.025) | − 0.071*** (0.024) |
B_Ethics | 0.040 | 0.041 | 0.053** | 0.049 | 0.053* |
(0. 033) | (0.029) | (0.026) | (0.030) | (0.030) | |
Emp_CSR | − 0.047 | − 0.067 | − 0.044 | − 0.064 | − 0.064 |
(0.045) | (0.046) | (0.046) | (0.046) | (0.046) | |
Eq_Oppo | 0.002 | 0.009 | 0.003 | 0.0001 | − 0.002 |
(0.032) | (0.029) | (0.029) | (0.031) | (0.030) | |
UN_GC | 0.012 | − 0.011 | − 0.015 | − 0.017 | − 0.020 |
(0.024) | (0.023) | (0.023) | (0.023) | (0.023) | |
H_Rights | − 0.073*** (0.025) | − 0.107*** (0.028) | − 0.113*** (0.029) | − 0.102*** (0.029) | − 0.106*** (0.029) |
Constant | 1.042** (0. 403) | 0 0.998*** (0. 361) | 1.159*** (0.381) | 1.034*** (0.383) | 1.079*** (0.386) |
Hansen Test (p-value) | 34.44 | 35.55 | 36.08 | 33.32 | 33.38 |
(0.154) | (0.126) | (0.113) | (0.187) | (0.185) | |
Sargan Test (p-value) | 31.51 | 31.51 | 31.46 | 30.76 | 30.69 |
(0.251) | (0.251) | (0.253) | (0.281) | (0.284) | |
F-Statistics (p-value) | 1008.95 | 762.75 | 682.25 | 675.35 | 652.99 |
(0.000) | (0.000) | (0.000) | (0.000) | (0.000) | |
AR(1) | 0.003 | 0.003 | 0.003 | 0.003 | 0.003 |
AR(2) | 0.314 | 0.318 | 0.332 | 0.356 | 0.351 |
No. of instruments | 44 | 45 | 46 | 46 | 46 |
No. of groups | 67 | 67 | 67 | 67 | 67 |
No. of firm-year observations | 325 | 325 | 325 | 325 | 325 |
The results of two-step system model are reported in the table. Below the coefficients are the standard errors reported in parentheses. The dependent variable is Log(CEOComp) [CEO compensation], and the independent variables are Ln(ESG_Score) [ESG disclosure score], Ln(Soc_Score) [social disclosure score], Ln(Blau Index) [Blau Index], Ln(Soc_Score* Blau Index) [social disclosure score * Blau Index], ROA [return on assets], ROE [return on equity], Tobin’s Q [Tobin’s Q], Returns[stock return to investors], F_Size [firm size], LEV [leverage], Ownership [ownership], M_to_B [market-to-book ratio], ACAD_D [academic degree], ADCD_S [academic specialization], B_Ethics [business ethics policy], Emp_CSR [employee CSR policy], Eq_Oppo [equal opportunity policy], UN_GC[United Nations global compact policy], H_Rights [human rights policy.].
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Rath, C., Deo, M. The ‘S’ in ESG and its moderating role in determining the performance-based CEO compensation. J. Soc. Econ. Dev. 26, 309–332 (2024). https://doi.org/10.1007/s40847-023-00310-8
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DOI: https://doi.org/10.1007/s40847-023-00310-8