CSR-linked executive compensation within the ESG framework: antecedents, performance outcomes, and ESG differentiation

This dissertation examines how executive pay tied to environmental and social objectives functions as a governance mechanism, when firms adopt it, how its effects depend on shareholder oversight, and how sustainability differentiation maps into financial and operating outcomes. It comprises four empirical studies that use complementary data, methods, and settings. Chapter 1 investigates whether linking executive compensation to corporate social responsibility (CSR) improves green innovation performance and through which organisational practices this occurs. Using a panel of European firms from 2012 to 2021 and Tobit models with a parallel multiple mediation design, the study shows that CSR contracting is positively associated with green innovation and that resource use practices and emissions practices are key transmission channels. Chapter 2 examines the antecedents of CSR contracting by integrating firm level board characteristics with country level institutions. Drawing on a multilevel panel of European firms from 2013 to 2022, the analysis finds that board specific skills and board independence raise the likelihood of adoption. At the institutional level, stronger control of corruption is associated with higher adoption, whereas regulatory quality shows no clear effect. Interaction tests indicate a substitution pattern in which skilled boards compensate for weaker institutional environments. Chapter 3 assesses whether CSR contracting curbs corporate social irresponsibility (CSiR) and how Say on Pay (SOP) voting conditions this relationship. Using a global panel from 2011 to 2022 and negative binomial models, the study finds that CSR contracting is associated with fewer ESG controversies when SOP is absent, while the presence of SOP offsets this mitigating effect. Chapter 4 develops an ESG based Product Differentiation Index that embeds environmental, social, and governance attributes into a cost Data Envelopment Analysis framework. Applied to United States chemical manufacturers from 2019 to 2022, stronger ESG differentiation is linked to lower short run profitability but higher cost efficiency, revealing a strategic trade-off between immediate financial pressure and operational gains.