ESG disclosure and pay-performance sensitivity

Grodt, Jonas Adriel dos Santos; Degenhart, Larissa; Magro, Cristian Baú Dal; Ávila, Lucas Veiga; Piccinin, Yvelise Giacomello

doi:10.1590/1808-057x20231811.en

Jonas Adriel dos Santos Grodt

Instituto Federal Sul-Rio-Grandense, Departamento de Administração e Planejamento, Passo Fundo, RS, Brazil

https://orcid.org/0000-0002-5517-1830

Larissa Degenhart

Universidade Federal de Santa Maria, Departamento de Ciências Contábeis, Santa Maria, RS, Brazil

https://orcid.org/0000-0003-0651-8540

Cristian Baú Dal Magro

Universidade Comunitária da Região de Chapecó, Departamento de Ciências Contábeis, Chapecó, SC, Brazil

https://orcid.org/0000-0002-7609-5806

Lucas Veiga Ávila

Universidade Federal de Santa Maria, Pró-Reitoria de Extensão, Santa Maria, RS, Brazil

https://orcid.org/0000-0003-1502-258X

Yvelise Giacomello Piccinin

Universidade Federal de Santa Maria, Departamento de Material e Patrimônio, Santa Maria, RS, Brazil

https://orcid.org/0000-0002-3537-1667

Email:
jonasgrodt@ifsul.edu.br

Email:
larissa.degenhart@ufsm.br

Email:
crisbau@unochapeco.edu.br

Email:
lucas.avila@ufsm.br

Email:
yvelise.giacomello@ufsm.br

Editor-in-Chief:

Approved by Fábio Frezatti, published by Andson Braga de Aguiar

Associate Editor:

Eliseu Martins

Correspondence address

Jonas Adriel dos Santos Grodt Instituto Federal Sul-Rio-Grandense, Departamento de Administração e Planejamento Estrada Perimetral Leste, 150 - CEP: 99064-440 São José - Passo Fundo - RS - Brazil

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Figure 1
Theoretical analysis model

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Table 1
Research construct

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Table 2
Descriptive statistics

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Panel A - Sensitivity of executive pay to market performance Eq. 1 - Dependent variable: ∆COMT Eq. 2 - Dependent variable: ∆COMPC ∆MV 0.313*** 0.067*** COMC -0.001 -0.002 PROP -0.192 -0.037 ROA -0.650 -0.268** FS 0.001 -0.006 SIZE -0.088*** -0.023*** Constant 1.564*** 0.435*** ANOVA 0.0000*** 0.0000*** R2 23.17% 23.18% DW 2.0634 1.9442 Sector FE Yes Yes Year FE Yes Yes Average VIF 1.85 1.85 Obs. 387 387 Panel B - Direct effect of ESG and its pillars on variation in executive pay Eq. 3 - Dependent variable: ∆COMT Eq. 4 - Dependent variable: ∆COMPC ∆MV 0.308*** 0.304*** 0.308*** 0.314*** 0.066*** 0.064*** 0.066*** 0.068*** ESG -0.283 -0.088*** ENV -0.158 -0.055** SOC -0.281* -0.082*** GOV -0.036 -0.024 COMC 0.004 0.000 -0.009 0.001 -0.001 -0.008 -0.004 -0.001 PROP -0.233* -0.188 -0.242* -0.202 -0.049* -0.035 -0.051* -0.043* ROA -0.713 -0.692 -0.658 -0.668 -0.287** -0.283** -0.271** -0.280** FS -0.003 -0.000 -0.001 -0.000 -0.007 -0.006 -0.006 -0.006 SIZE -0.068** -0.073*** -0.064** -0.087*** -0.016*** -0.018*** -0.016*** -0.022*** Constant 1.399*** 1.398*** 1.347*** 1.571*** 0.384*** 0.378*** 0.372*** 0.439*** ANOVA 0.0000*** 0.0000*** 0.0000*** 0.0000*** 0.0000*** 0.0000*** 0.0000*** 0.0000*** R2 23.93% 23.53% 24.11% 23.19% 24.81% 24.15% 24.96% 23.35% DW 2.0774 2.0749 2.0874 2.0632 1.9684 1.9577 1.9771 1.9501 Sector FE Yes Yes Yes Yes Yes Yes Yes Yes Year FE Yes Yes Yes Yes Yes Yes Yes Yes Average VIF 1.85 1.86 1.85 1.83 1.85 1.86 1.85 1.83 Obs. 387 387 387 387 387 387 387 387 Panel C - Moderating effect of ESG and its pillars on PPS Eq. 5 - Dependent variable: ∆COMT Eq. 6 - Dependent variable: ∆COMPC ESG -0.386** -0.107*** ∆MV*ESG 0.645*** 0.127*** ENV -0.246* -0.073*** ∆MV*ENV 0.655*** 0.135*** SOC -0.382** -0.102*** ∆MV*SOC 0.611*** 0.120*** GOV -0.123 -0.038 ∆MV*GOV 0.587*** 0.113*** COMC 0.001 -0.005 -0.009 -0.002 -0.003 -0.004 -0.006 -0.003 PROP -0.207 -0.171 -0.217* -0.163 -0.046* -0.034 -0.048* -0.037 ROA -0.778 -0.594 -0.713 -0.719 -0.284** -0.253** -0.266** -0.269** FS -0.003 -0.008 0.000 -0.000 -0.007 -0.007 -0.006 -0.006 SIZE -0.066** -0.076*** -0.063** -0.087*** -0.016*** -0.018*** -0.015*** -0.022*** Constant 1.434*** 1.514*** 1.391*** 1.605*** 0.387*** 0.395*** 0.376*** 0.443*** ANOVA 0.0000*** 0.0000*** 0.0000*** 0.0000*** 0.0000*** 0.0000*** 0.0000*** 0.0000*** R2 24.40% 22.88% 24.40% 23.77% 24.88% 23.59% 29.94% 23.31% DW 2.1111 2.0969 2.1162 2.1009 1.9741 1.9542 1.9763 1.9628 Sector FE Yes Yes Yes Yes Yes Yes Yes Yes Year FE Yes Yes Yes Yes Yes Yes Yes Yes Average VIF 1.83 1.83 1.83 1.81 1.83 1.83 1.83 1.81 Obs. 389 389 389 389 389 389 389 389 Eq. = Equation; ∆MV*ESG = interactive variable of market value variation with ESG; ∆MV*ENV = interactive variable of market value variation with ENV; ∆MV*SOC = interactive variable of market value variation with the SOC; ∆MV*GOV = interactive variable of market value variation with GOV; DW = Durbin-Watson; Sector FE = sector fixed effects; Year FE = year fixed effects; VIF = variance inflation factor. ***, **, * = significant at 1%, 5% and 10%, respectively. Fonte: Prepared by the authors.

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Variable	Operationalization	Source	Authors
Dependent Variables - Compensation of Executive Directors
Variation in total executive board compensation (∆COMT)	Difference between total management compensation in t and t-1 (in R$ units) weighted by total assets in t-1 (in R$ thousands)	Item 13.2 of the B3 Reference Form.	Amzaleg et al. (2014Amzaleg, Y., Azar, O. H., Ben-Zion, U., & Rosenfeld, A. (2014). CEO control, corporate performance and pay-performance sensitivity. Journal of Economic Behavior & Organization, 106, 166-174. https://doi.org/10.1016/j.jebo.2014.07.004 https://doi.org/10.1016/j.jebo.2014.07.0... ); Brandão et al. (2019Brandão, I. D. F., Vasconcelos, A. C. D., De Luca, M. M. M., & Crisóstomo, V. L. (2019). Composição do conselho de administração e sensibilidade da remuneração executiva ao desempenho de mercado. Revista Contabilidade & Finanças, 30(79), 28-41. https://doi.org/10.1590/1808-057x201806610 https://doi.org/10.1590/1808-057x2018066... ); Ferrell et al. (2016Ferrell, A., Hao, L., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122(3), 585-606. https://doi.org/10.1016/j.jfineco.2015.12.003 https://doi.org/10.1016/j.jfineco.2015.1... ); Gillan et al. (2010Gillan, S., Hartzell, J. C., Koch, A., & Starks, L. T. (2010). Firms’ environmental, social and governance choices, performance and managerial motivation. Working Paper, 1-45. Retrieved from: https://sites.pitt.edu/~awkoch/ESG%20Nov%202010.pdf https://sites.pitt.edu/~awkoch/ESG%20Nov... ); Iglesias et al. (2022Iglesias, T. M. G., Silva, T. D., Jesuka, D., & Peixoto, F. M. (2022). Reflexos da Governança Corporativa sobre a Pay-Performance Sensitivity: uma nova perspectiva. Revista de Administração Mackenzie, 23(1), 1-27. https://doi.org/10.1590/1678-6971/eRAMF220088 https://doi.org/10.1590/1678-6971/eRAMF2... ); Jensen e Murphy (1990Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225-264. https://doi.org/10.1086/261677 https://doi.org/10.1086/261677... ); Jian e Lee (2015Jian, M., & Lee, K. W. (2015). CEO compensation and corporate social responsibility. Journal of Multinational Financial Management, 29, 46-65. https://doi.org/10.1016/j.mulfin.2014.11.004 https://doi.org/10.1016/j.mulfin.2014.11... ); Lei et al. (2019Lei, Q., Lu, R., & Ren, L. (2019). Non-CEO top managers’ monitoring power and CEO pay-performance sensitivity in state-owned enterprises: Evidence from Chinese state-owned listed firms. China Journal of Accounting Research, 12(4), 411-430. https://doi.org/10.1016/j.cjar.2019.10.001 https://doi.org/10.1016/j.cjar.2019.10.0... ); Ouyang et al. (2019Ouyang, C., Xiong, J., & Fan, L. (2019). Do insiders share pledging affect executive pay-for-performance sensitivity? International Review of Economics & Finance, 63, 226-239. https://doi.org/10.1016/j.iref.2018.10.019 https://doi.org/10.1016/j.iref.2018.10.0... ); Rath et al. (2020Rath, C., Kurniasari, F., & Deo, M. (2020). CEO Compensation and Firm Performance: The Role of ESG Transparency. Indonesian Journal of Sustainability Accounting and Management, 4(2), 278-293. https:// doi.org/10.28992/ijsam.v4i2.225 https:// doi.org/10.28992/ijsam.v4i2.225... ); Zhou et al. (2017Zhou, F., Fan, Y., An, Y., & Zhong, L. (2017). Independent directors, non-controlling directors, and executive pay-for-performance sensitivity: Evidence from Chinese non-state owned enterprises. Pacific-Basin Finance Journal, 43, 55-71. https://doi.org/10.1016/j.pacfin.2017.02.003 https://doi.org/10.1016/j.pacfin.2017.02... ).
Change in executive board compensation per capita (∆COMPC)	Difference between the per capita compensation of the board of directors in t and the compensation in t-1 (in R$ units) weighted by total assets in t-1 (in R$ thousands)	Item 13.2 of the B3 Reference Form.	Brandão et al. (2019Brandão, I. D. F., Vasconcelos, A. C. D., De Luca, M. M. M., & Crisóstomo, V. L. (2019). Composição do conselho de administração e sensibilidade da remuneração executiva ao desempenho de mercado. Revista Contabilidade & Finanças, 30(79), 28-41. https://doi.org/10.1590/1808-057x201806610 https://doi.org/10.1590/1808-057x2018066... ); Jensen & Murphy (1990Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225-264. https://doi.org/10.1086/261677 https://doi.org/10.1086/261677... ); Lei et al. (2019Lei, Q., Lu, R., & Ren, L. (2019). Non-CEO top managers’ monitoring power and CEO pay-performance sensitivity in state-owned enterprises: Evidence from Chinese state-owned listed firms. China Journal of Accounting Research, 12(4), 411-430. https://doi.org/10.1016/j.cjar.2019.10.001 https://doi.org/10.1016/j.cjar.2019.10.0... ); Ouyang et al. (2019Ouyang, C., Xiong, J., & Fan, L. (2019). Do insiders share pledging affect executive pay-for-performance sensitivity? International Review of Economics & Finance, 63, 226-239. https://doi.org/10.1016/j.iref.2018.10.019 https://doi.org/10.1016/j.iref.2018.10.0... ); Zhou et al. (2017Zhou, F., Fan, Y., An, Y., & Zhong, L. (2017). Independent directors, non-controlling directors, and executive pay-for-performance sensitivity: Evidence from Chinese non-state owned enterprises. Pacific-Basin Finance Journal, 43, 55-71. https://doi.org/10.1016/j.pacfin.2017.02.003 https://doi.org/10.1016/j.pacfin.2017.02... ).
Independent Variable - Market Performance
Change in market value (∆MV)	Difference between the company's market value in t and its value in t-1 (in R$ thousands) weighted by total assets in t-1 (in R$ thousands)	Economática^®	Brandão et al. (2019Brandão, I. D. F., Vasconcelos, A. C. D., De Luca, M. M. M., & Crisóstomo, V. L. (2019). Composição do conselho de administração e sensibilidade da remuneração executiva ao desempenho de mercado. Revista Contabilidade & Finanças, 30(79), 28-41. https://doi.org/10.1590/1808-057x201806610 https://doi.org/10.1590/1808-057x2018066... ); Ferrell et al. (2016Ferrell, A., Hao, L., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122(3), 585-606. https://doi.org/10.1016/j.jfineco.2015.12.003 https://doi.org/10.1016/j.jfineco.2015.1... ); Iglesias et al. (2022Iglesias, T. M. G., Silva, T. D., Jesuka, D., & Peixoto, F. M. (2022). Reflexos da Governança Corporativa sobre a Pay-Performance Sensitivity: uma nova perspectiva. Revista de Administração Mackenzie, 23(1), 1-27. https://doi.org/10.1590/1678-6971/eRAMF220088 https://doi.org/10.1590/1678-6971/eRAMF2... ); Jensen & Murphy (1990Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225-264. https://doi.org/10.1086/261677 https://doi.org/10.1086/261677... ); Rath et al. (2020Rath, C., Kurniasari, F., & Deo, M. (2020). CEO Compensation and Firm Performance: The Role of ESG Transparency. Indonesian Journal of Sustainability Accounting and Management, 4(2), 278-293. https:// doi.org/10.28992/ijsam.v4i2.225 https:// doi.org/10.28992/ijsam.v4i2.225... ).
Moderating Independent Variables - Environmental, Social and Governance (ESG)
ESG	According to the Refinitiv Eikon® report (2022Refinitiv Eikon. (2022). Environmental, Social and Governance scores from Refinitiv. Retrieved from: https://www.refinitiv.com/content/dam/marketing/en_us/documents/methodology/refinitiv-esg-scores-methodology.pdf https://www.refinitiv.com/content/dam/ma... ), this refers to an overall score, covering environmental, social and corporate governance aspects.	Refinitiv Eikon^®	Cho & Ibrahim (2021Cho, M., & Ibrahim, S. (2021). Non-financial performance measures and pay-performance sensitivity. Journal of Financial Reporting and Accounting, 1-30. https://doi.org/10.1108/JFRA-01-2021-0018 https://doi.org/10.1108/JFRA-01-2021-001... ); Ferrell et al. (2016Ferrell, A., Hao, L., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122(3), 585-606. https://doi.org/10.1016/j.jfineco.2015.12.003 https://doi.org/10.1016/j.jfineco.2015.1... ); Gillan et al. (2010Gillan, S., Hartzell, J. C., Koch, A., & Starks, L. T. (2010). Firms’ environmental, social and governance choices, performance and managerial motivation. Working Paper, 1-45. Retrieved from: https://sites.pitt.edu/~awkoch/ESG%20Nov%202010.pdf https://sites.pitt.edu/~awkoch/ESG%20Nov... ); Jian & Lee (2015Jian, M., & Lee, K. W. (2015). CEO compensation and corporate social responsibility. Journal of Multinational Financial Management, 29, 46-65. https://doi.org/10.1016/j.mulfin.2014.11.004 https://doi.org/10.1016/j.mulfin.2014.11... ); Rath et al. (2020Rath, C., Kurniasari, F., & Deo, M. (2020). CEO Compensation and Firm Performance: The Role of ESG Transparency. Indonesian Journal of Sustainability Accounting and Management, 4(2), 278-293. https:// doi.org/10.28992/ijsam.v4i2.225 https:// doi.org/10.28992/ijsam.v4i2.225... );
Environmental disclosure (ENV)	According to the Refinitiv Eikon® report (2022Refinitiv Eikon. (2022). Environmental, Social and Governance scores from Refinitiv. Retrieved from: https://www.refinitiv.com/content/dam/marketing/en_us/documents/methodology/refinitiv-esg-scores-methodology.pdf https://www.refinitiv.com/content/dam/ma... ), this refers to the environmental score. It covers aspects related to the use of resources, emissions, and environmental innovation.		Ferrell et al. (2016Ferrell, A., Hao, L., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122(3), 585-606. https://doi.org/10.1016/j.jfineco.2015.12.003 https://doi.org/10.1016/j.jfineco.2015.1... ); Gillan et al. (2010Gillan, S., Hartzell, J. C., Koch, A., & Starks, L. T. (2010). Firms’ environmental, social and governance choices, performance and managerial motivation. Working Paper, 1-45. Retrieved from: https://sites.pitt.edu/~awkoch/ESG%20Nov%202010.pdf https://sites.pitt.edu/~awkoch/ESG%20Nov... ); Rath et al. (2020Rath, C., Kurniasari, F., & Deo, M. (2020). CEO Compensation and Firm Performance: The Role of ESG Transparency. Indonesian Journal of Sustainability Accounting and Management, 4(2), 278-293. https:// doi.org/10.28992/ijsam.v4i2.225 https:// doi.org/10.28992/ijsam.v4i2.225... ).
Social disclosure (SOC)	According to the Refinitiv Eikon® report (2022Refinitiv Eikon. (2022). Environmental, Social and Governance scores from Refinitiv. Retrieved from: https://www.refinitiv.com/content/dam/marketing/en_us/documents/methodology/refinitiv-esg-scores-methodology.pdf https://www.refinitiv.com/content/dam/ma... ), this refers to the social score. It covers aspects related to human rights, employees, community and product responsibility.		Ferrell et al. (2016Ferrell, A., Hao, L., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122(3), 585-606. https://doi.org/10.1016/j.jfineco.2015.12.003 https://doi.org/10.1016/j.jfineco.2015.1... ); Gillan et al. (2010Gillan, S., Hartzell, J. C., Koch, A., & Starks, L. T. (2010). Firms’ environmental, social and governance choices, performance and managerial motivation. Working Paper, 1-45. Retrieved from: https://sites.pitt.edu/~awkoch/ESG%20Nov%202010.pdf https://sites.pitt.edu/~awkoch/ESG%20Nov... ); Rath et al. (2020Rath, C., Kurniasari, F., & Deo, M. (2020). CEO Compensation and Firm Performance: The Role of ESG Transparency. Indonesian Journal of Sustainability Accounting and Management, 4(2), 278-293. https:// doi.org/10.28992/ijsam.v4i2.225 https:// doi.org/10.28992/ijsam.v4i2.225... ).
Governance disclosure (GOV)	According to the Refinitiv Eikon® report (2022Refinitiv Eikon. (2022). Environmental, Social and Governance scores from Refinitiv. Retrieved from: https://www.refinitiv.com/content/dam/marketing/en_us/documents/methodology/refinitiv-esg-scores-methodology.pdf https://www.refinitiv.com/content/dam/ma... ), this refers to the governance score. It covers aspects related to management, shareholders and corporate social responsibility (CSR) strategy.		Ferrell et al. (2016Ferrell, A., Hao, L., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122(3), 585-606. https://doi.org/10.1016/j.jfineco.2015.12.003 https://doi.org/10.1016/j.jfineco.2015.1... ); Gillan et al. (2010Gillan, S., Hartzell, J. C., Koch, A., & Starks, L. T. (2010). Firms’ environmental, social and governance choices, performance and managerial motivation. Working Paper, 1-45. Retrieved from: https://sites.pitt.edu/~awkoch/ESG%20Nov%202010.pdf https://sites.pitt.edu/~awkoch/ESG%20Nov... ); Rath et al. (2020Rath, C., Kurniasari, F., & Deo, M. (2020). CEO Compensation and Firm Performance: The Role of ESG Transparency. Indonesian Journal of Sustainability Accounting and Management, 4(2), 278-293. https:// doi.org/10.28992/ijsam.v4i2.225 https:// doi.org/10.28992/ijsam.v4i2.225... ).
Control Variables - Corporate Governance
Compensation committee (COMC)	Presence of a compensation committee on the Board of Directors (dichotomous variable)	Refinitiv Eikon^® and Item 12.1 and 12.7/8 of the B3 Reference Form	Brandão et al. (2019Brandão, I. D. F., Vasconcelos, A. C. D., De Luca, M. M. M., & Crisóstomo, V. L. (2019). Composição do conselho de administração e sensibilidade da remuneração executiva ao desempenho de mercado. Revista Contabilidade & Finanças, 30(79), 28-41. https://doi.org/10.1590/1808-057x201806610 https://doi.org/10.1590/1808-057x2018066... ); Ferrell et al. (2016Ferrell, A., Hao, L., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122(3), 585-606. https://doi.org/10.1016/j.jfineco.2015.12.003 https://doi.org/10.1016/j.jfineco.2015.1... ); Iglesias et al. (2022Iglesias, T. M. G., Silva, T. D., Jesuka, D., & Peixoto, F. M. (2022). Reflexos da Governança Corporativa sobre a Pay-Performance Sensitivity: uma nova perspectiva. Revista de Administração Mackenzie, 23(1), 1-27. https://doi.org/10.1590/1678-6971/eRAMF220088 https://doi.org/10.1590/1678-6971/eRAMF2... ).
Concentration of voting rights (PROP)	Percentage of ordinary shares held by the company's largest shareholder in t.	Economática^®	Brandão et al. (2019Brandão, I. D. F., Vasconcelos, A. C. D., De Luca, M. M. M., & Crisóstomo, V. L. (2019). Composição do conselho de administração e sensibilidade da remuneração executiva ao desempenho de mercado. Revista Contabilidade & Finanças, 30(79), 28-41. https://doi.org/10.1590/1808-057x201806610 https://doi.org/10.1590/1808-057x2018066... ); Iglesias et al. (2022Iglesias, T. M. G., Silva, T. D., Jesuka, D., & Peixoto, F. M. (2022). Reflexos da Governança Corporativa sobre a Pay-Performance Sensitivity: uma nova perspectiva. Revista de Administração Mackenzie, 23(1), 1-27. https://doi.org/10.1590/1678-6971/eRAMF220088 https://doi.org/10.1590/1678-6971/eRAMF2... ); Lei et al. (2019Lei, Q., Lu, R., & Ren, L. (2019). Non-CEO top managers’ monitoring power and CEO pay-performance sensitivity in state-owned enterprises: Evidence from Chinese state-owned listed firms. China Journal of Accounting Research, 12(4), 411-430. https://doi.org/10.1016/j.cjar.2019.10.001 https://doi.org/10.1016/j.cjar.2019.10.0... ); Ouyang et al. (2019Ouyang, C., Xiong, J., & Fan, L. (2019). Do insiders share pledging affect executive pay-for-performance sensitivity? International Review of Economics & Finance, 63, 226-239. https://doi.org/10.1016/j.iref.2018.10.019 https://doi.org/10.1016/j.iref.2018.10.0... ); Yang et al. (2021Yang, H. Y., Yao, D., & Qu, X. (2021). How does independent directors’ reputation influence pay‐for‐performance? Evidence from China. Accounting & Finance, 62(1), 959-1007. https://doi.org/10.1111/acfi.12815 https://doi.org/10.1111/acfi.12815... ).
Control Variables - Company Specific
Return on assets (ROA)	Ratio between the company's net income and its total assets in t.	Economática^®	Ghrab et al. (2021Ghrab, M., Gana, M., & Dakhlaoui, M. (2021). Pay-performance sensitivity and corporate governance mechanisms: evidence from Tunisia. Journal of Financial Reporting and Accounting, 1-20. https://doi.org/10.1108/JFRA-06-2020-0152 https://doi.org/10.1108/JFRA-06-2020-015... ); Lei et al. (2019Lei, Q., Lu, R., & Ren, L. (2019). Non-CEO top managers’ monitoring power and CEO pay-performance sensitivity in state-owned enterprises: Evidence from Chinese state-owned listed firms. China Journal of Accounting Research, 12(4), 411-430. https://doi.org/10.1016/j.cjar.2019.10.001 https://doi.org/10.1016/j.cjar.2019.10.0... ); Ouyang et al. (2019Ouyang, C., Xiong, J., & Fan, L. (2019). Do insiders share pledging affect executive pay-for-performance sensitivity? International Review of Economics & Finance, 63, 226-239. https://doi.org/10.1016/j.iref.2018.10.019 https://doi.org/10.1016/j.iref.2018.10.0... ); Rath et al. (2020Rath, C., Kurniasari, F., & Deo, M. (2020). CEO Compensation and Firm Performance: The Role of ESG Transparency. Indonesian Journal of Sustainability Accounting and Management, 4(2), 278-293. https:// doi.org/10.28992/ijsam.v4i2.225 https:// doi.org/10.28992/ijsam.v4i2.225... ); Yang et al. (2021Yang, H. Y., Yao, D., & Qu, X. (2021). How does independent directors’ reputation influence pay‐for‐performance? Evidence from China. Accounting & Finance, 62(1), 959-1007. https://doi.org/10.1111/acfi.12815 https://doi.org/10.1111/acfi.12815... ); Zhou et al. (2017Zhou, F., Fan, Y., An, Y., & Zhong, L. (2017). Independent directors, non-controlling directors, and executive pay-for-performance sensitivity: Evidence from Chinese non-state owned enterprises. Pacific-Basin Finance Journal, 43, 55-71. https://doi.org/10.1016/j.pacfin.2017.02.003 https://doi.org/10.1016/j.pacfin.2017.02... ).
Financial slack (FS)	Ratio between the company's current assets and its current liabilities in t.	Economática^®	Kim et al. (2008Kim, H., Kim, H., & Lee, P. M. (2008). Ownership structure and the relationship between financial slack and R&D investments: Evidence from Korean firms. Organization Science, 19(3), 404-418. https://doi.org/10.1287/orsc.1080.0360 https://doi.org/10.1287/orsc.1080.0360... ).
Company size (SIZE)	Natural logarithm of the company's total assets in t-1.	Economática^®	Brandão et al. (2019Brandão, I. D. F., Vasconcelos, A. C. D., De Luca, M. M. M., & Crisóstomo, V. L. (2019). Composição do conselho de administração e sensibilidade da remuneração executiva ao desempenho de mercado. Revista Contabilidade & Finanças, 30(79), 28-41. https://doi.org/10.1590/1808-057x201806610 https://doi.org/10.1590/1808-057x2018066... ); Chang et al. (2018Chang, Y., Chen, T. H., & Shu, M. C. (2018). Corporate social responsibility, corporate performance, and pay-performance sensitivity - evidence from shanghai stock exchange social responsibility index. Emerging Markets Finance and Trade, 54(5), 1183-1203. https://doi.org/10.1080/1540496X.2016.1273768 https://doi.org/10.1080/1540496X.2016.12... ); Iglesias et al. (2022Iglesias, T. M. G., Silva, T. D., Jesuka, D., & Peixoto, F. M. (2022). Reflexos da Governança Corporativa sobre a Pay-Performance Sensitivity: uma nova perspectiva. Revista de Administração Mackenzie, 23(1), 1-27. https://doi.org/10.1590/1678-6971/eRAMF220088 https://doi.org/10.1590/1678-6971/eRAMF2... ); Lei et al. (2019Lei, Q., Lu, R., & Ren, L. (2019). Non-CEO top managers’ monitoring power and CEO pay-performance sensitivity in state-owned enterprises: Evidence from Chinese state-owned listed firms. China Journal of Accounting Research, 12(4), 411-430. https://doi.org/10.1016/j.cjar.2019.10.001 https://doi.org/10.1016/j.cjar.2019.10.0... ); Ouyang et al. (2019Ouyang, C., Xiong, J., & Fan, L. (2019). Do insiders share pledging affect executive pay-for-performance sensitivity? International Review of Economics & Finance, 63, 226-239. https://doi.org/10.1016/j.iref.2018.10.019 https://doi.org/10.1016/j.iref.2018.10.0... ); Rath et al. (2020Rath, C., Kurniasari, F., & Deo, M. (2020). CEO Compensation and Firm Performance: The Role of ESG Transparency. Indonesian Journal of Sustainability Accounting and Management, 4(2), 278-293. https:// doi.org/10.28992/ijsam.v4i2.225 https:// doi.org/10.28992/ijsam.v4i2.225... ); Yang et al. (2021Yang, H. Y., Yao, D., & Qu, X. (2021). How does independent directors’ reputation influence pay‐for‐performance? Evidence from China. Accounting & Finance, 62(1), 959-1007. https://doi.org/10.1111/acfi.12815 https://doi.org/10.1111/acfi.12815... );
Control Variables - Fixed Effects
Sector fixed effects	Company's main activity. Dichotomous variable. Bovespa economic sector classification.	Economática^®	Aguiar & Pimentel (2017Aguiar, A. B., & Pimentel, R. C. (2017). Remuneração de executivos e desempenho no mercado brasileiro: relações contemporâneas e defasadas. Revista de Administração Contemporânea, 21(4), 545-568. https://doi.org/10.1590/1982-7849rac2017160228 https://doi.org/10.1590/1982-7849rac2017... ); Brandão et al. (2019Brandão, I. D. F., Vasconcelos, A. C. D., De Luca, M. M. M., & Crisóstomo, V. L. (2019). Composição do conselho de administração e sensibilidade da remuneração executiva ao desempenho de mercado. Revista Contabilidade & Finanças, 30(79), 28-41. https://doi.org/10.1590/1808-057x201806610 https://doi.org/10.1590/1808-057x2018066... ); Iglesias et al. (2022Iglesias, T. M. G., Silva, T. D., Jesuka, D., & Peixoto, F. M. (2022). Reflexos da Governança Corporativa sobre a Pay-Performance Sensitivity: uma nova perspectiva. Revista de Administração Mackenzie, 23(1), 1-27. https://doi.org/10.1590/1678-6971/eRAMF220088 https://doi.org/10.1590/1678-6971/eRAMF2... ); Jian & Lee (2015Jian, M., & Lee, K. W. (2015). CEO compensation and corporate social responsibility. Journal of Multinational Financial Management, 29, 46-65. https://doi.org/10.1016/j.mulfin.2014.11.004 https://doi.org/10.1016/j.mulfin.2014.11... ); Lei et al. (2019Lei, Q., Lu, R., & Ren, L. (2019). Non-CEO top managers’ monitoring power and CEO pay-performance sensitivity in state-owned enterprises: Evidence from Chinese state-owned listed firms. China Journal of Accounting Research, 12(4), 411-430. https://doi.org/10.1016/j.cjar.2019.10.001 https://doi.org/10.1016/j.cjar.2019.10.0... ); Ouyang et al. (2019Ouyang, C., Xiong, J., & Fan, L. (2019). Do insiders share pledging affect executive pay-for-performance sensitivity? International Review of Economics & Finance, 63, 226-239. https://doi.org/10.1016/j.iref.2018.10.019 https://doi.org/10.1016/j.iref.2018.10.0... ).
Year fixed effects	Analysis period: 2016 to 2021. Dichotomous year variable.	-	-

Panel A - Descriptive statistics for executive pay and market value in gross values
Variables		Obs.	Mean	SD	Minimum	Maximum	CV
Total compensation	In the period	398	47,098,202	92,579,147	71,060	818,051,847	1.966
Total compensation	Annual variation	396	4,627,582	24,418,715	-124,239,960	202,455,017	5.277
Per capita compensation	In the period	398	5,309,943	4,619,729	17,765	27,683,502	0.870
Per capita compensation	Annual variation	396	610,367	2,775,770	-16,307,952	17,642,355	4.548
Market value	In the period	397	45,852,137	72,756,586	1,024,061	448,610,718	1.587
Market value	Annual variation	396	5,183,508	21,537,497	-94,800,744	175,273,233	4.155
Panel B - Descriptive statistics for the main independent, dependent and control variables
Variables		Obs.	Mean	SD	Minimum	Maximum	CV
∆COMT		396	0.187	0.506	-0.636	1.599	2.706
∆COMPC		396	0.041	0.107	-0.111	0.349	2.610
∆MV		396	0.155	0.360	-0.368	1.14	2.323
COMC		398	0.407	0.492	0	1	1.209
PROP		398	0.388	0.209	0.077	0.784	0.539
ROA		398	0.042	0.045	-0.041	0.139	1.071
FS		391	1.628	0.664	0.735	3.019	0.408
SIZE		398	17.260	1.332	15.363	20.711	0.077
Panel C - Descriptive statistics for the independent moderating variables
Variables		Obs.	Mean	SD	Minimum	Maximum	CV
ESG		398	0.568	0.189	0.204	0.854	0.333
ENV		398	0.540	0.239	0.094	0.885	0.443
SOC		398	0.601	0.209	0.232	0.911	0.348
GOV		398	0.555	0.206	0.179	0.877	0.371

Panel A - Sensitivity of executive pay to market performance
	Eq. 1 - Dependent variable: ∆COMT				Eq. 2 - Dependent variable: ∆COMPC
∆MV	0.313^***				0.067^***
COMC	-0.001				-0.002
PROP	-0.192				-0.037
ROA	-0.650				-0.268^**
FS	0.001				-0.006
SIZE	-0.088^***				-0.023^***
Constant	1.564^***				0.435^***
ANOVA	0.0000^***				0.0000^***
R²	23.17%				23.18%
DW	2.0634				1.9442
Sector FE	Yes				Yes
Year FE	Yes				Yes
Average VIF	1.85				1.85
Obs.	387				387
Panel B - Direct effect of ESG and its pillars on variation in executive pay
	Eq. 3 - Dependent variable: ∆COMT				Eq. 4 - Dependent variable: ∆COMPC
∆MV	0.308^***	0.304^***	0.308^***	0.314^***	0.066^***	0.064^***	0.066^***	0.068^***
ESG	-0.283				-0.088^***
ENV		-0.158				-0.055^**
SOC			-0.281^*				-0.082^***
GOV				-0.036				-0.024
COMC	0.004	0.000	-0.009	0.001	-0.001	-0.008	-0.004	-0.001
PROP	-0.233^*	-0.188	-0.242^*	-0.202	-0.049^*	-0.035	-0.051^*	-0.043^*
ROA	-0.713	-0.692	-0.658	-0.668	-0.287^**	-0.283^**	-0.271^**	-0.280^**
FS	-0.003	-0.000	-0.001	-0.000	-0.007	-0.006	-0.006	-0.006
SIZE	-0.068^**	-0.073^***	-0.064^**	-0.087^***	-0.016^***	-0.018^***	-0.016^***	-0.022^***
Constant	1.399^***	1.398^***	1.347^***	1.571^***	0.384^***	0.378^***	0.372^***	0.439^***
ANOVA	0.0000^***	0.0000^***	0.0000^***	0.0000^***	0.0000^***	0.0000^***	0.0000^***	0.0000^***
R²	23.93%	23.53%	24.11%	23.19%	24.81%	24.15%	24.96%	23.35%
DW	2.0774	2.0749	2.0874	2.0632	1.9684	1.9577	1.9771	1.9501
Sector FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Year FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Average VIF	1.85	1.86	1.85	1.83	1.85	1.86	1.85	1.83
Obs.	387	387	387	387	387	387	387	387
Panel C - Moderating effect of ESG and its pillars on PPS
	Eq. 5 - Dependent variable: ∆COMT				Eq. 6 - Dependent variable: ∆COMPC
ESG	-0.386^**				-0.107^***
∆MV^*ESG	0.645^***				0.127^***
ENV		-0.246^*				-0.073^***
∆MV^*ENV		0.655^***				0.135^***
SOC			-0.382^**				-0.102^***
∆MV*SOC			0.611^***				0.120^***
GOV				-0.123				-0.038
∆MV*GOV				0.587^***				0.113^***
COMC	0.001	-0.005	-0.009	-0.002	-0.003	-0.004	-0.006	-0.003
PROP	-0.207	-0.171	-0.217^*	-0.163	-0.046^*	-0.034	-0.048^*	-0.037
ROA	-0.778	-0.594	-0.713	-0.719	-0.284^**	-0.253^**	-0.266^**	-0.269^**
FS	-0.003	-0.008	0.000	-0.000	-0.007	-0.007	-0.006	-0.006
SIZE	-0.066^**	-0.076^***	-0.063^**	-0.087^***	-0.016^***	-0.018^***	-0.015^***	-0.022^***
Constant	1.434^***	1.514^***	1.391^***	1.605^***	0.387^***	0.395^***	0.376^***	0.443^***
ANOVA	0.0000^***	0.0000^***	0.0000^***	0.0000^***	0.0000^***	0.0000^***	0.0000^***	0.0000^***
R²	24.40%	22.88%	24.40%	23.77%	24.88%	23.59%	29.94%	23.31%
DW	2.1111	2.0969	2.1162	2.1009	1.9741	1.9542	1.9763	1.9628
Sector FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Year FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Average VIF	1.83	1.83	1.83	1.81	1.83	1.83	1.83	1.81
Obs.	389	389	389	389	389	389	389	389

[1] Email:
jonasgrodt@ifsul.edu.br

Brasil

Brasil

ESG disclosure and pay-performance sensitivity

Abstract