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 book 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 2499 listed European corporations have been statistically analysed. 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.