This study investigates the empirical association between environmental, social and corporate governance (ESG) performance and top executive compensation in the US financial services industry. Considering that financial firms can inflict systemic shocks across the economy, it has been argued that they must conduct ethical and sustainable business in accordance with ESG principles. This study examines whether ESG efforts are beneficial to managers.

The authorsfind that lagged ESGratings are strongly associated with all forms of compensation. Anincrease of one standard deviation in the composite ESG rating is associated with a 14%–16% increase in the total pay. AmongthethreeESGpillars,onlyS(social)andG(governance)exhibitpersistent andsignificant associations with both short- and long-term executive pay. The authors also document the significant moderating effects of ESG on the relationships among firm performance, size, leverage, ownership and executive pay, identifying how ESG is associated with compensation.