Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/330666 
Year of Publication: 
2025
Series/Report no.: 
CFR Working Paper No. 25-10
Publisher: 
University of Cologne, Centre for Financial Research (CFR), Cologne
Abstract: 
We model firm executives' compensation incentives when ESG metrics are added to their performance-vested contracts. Drawing on multitasking theory, we predict that incentives tied to standard accounting or financial metrics are reduced after introducing ESG metrics to induce executives to reallocate effort toward ESG goals. Empirically, the expected pay-performance sensitivity of standard metrics decreases by about 20% after ESG adoption, especially when ESG metrics are more numerous, less complementary, or less measurable. The tradeoff is associated with improved ESG ratings, consistent with efficient incentive design under multitasking that optimally balances effort across financial and ESG objectives.
Subjects: 
ESG pay
multitasking
pay-performance sensitivity
dollar delta
incentives
executive compensation
Environmental, Social, and Governance (ESG) metrics
JEL: 
J33
M12
M14
G34
G32
Document Type: 
Working Paper

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