Proceedings of the 7th International Conference on Management, Economics and Finance
ESG-based executive compensations in Canada
Tao Zeng, Ph.D, CPA, CGA
This paper explores ESG-based executive compensations in Canada. It first examines why firms implement ESG-based compensations by investigating what corporate ownership and governance factors are associated with these compensations. It then examines the relation between firms’ ESG-based compensations and their ESG performance.
This paper is an empirical study using Canadian firms listed on TXS60 for the period of 2019-20. It finds that, relative to other firms, firms with socially responsible directors or with an ESG committee are more likely to have ESG measure in designing their executive compensation contracts. In addition, firms with ESG-based executive compensations are engaging in a higher level of ESG practices, measured by the overall ESG performance and the performance in the social and governance dimensions. An additional test shows that, firms with ESG-based executive compensations are more likely to be on the Top 100 Employers list.
This study contributes to the current ESG literature by investigating what governance factors are associated with ESG-based executive compensations and by highlighting the importance of ESG-based executive compensations in shaping a firm’s ESG practices.
keywords: ESG, ESG-based executive compensation, directors, ownership, ESG committee