ESG-based executive compensation: state of art and future research directions

Environmental, social and governance (ESG)-based executive compensation (ESGBEC) represents an increasingly adopted governance tool which responds to institutional pressures that encourage corporate commitment to sustainability, aligning corporate strategies with stakeholders who value ESG as well as financial outcomes (EU 2017 / 828). Companies incorporate ESGBEC to demonstrate their commitment to sustainability, align management objectives with ESG-focused stakeholders (Ben Ali and Chouaibi, 2024; Homroy et al., 2023), achieve ESG outcomes linked to future financial performance (Cohen et al., 2023) and signal dedication to these issues to stakeholders (Winschel and Stawinoga, 2019).

Despite the increased use of ESGBEC among large firms, particularly in Europe (Melis et al., 2025) and the USA (Bebchuk and Tallarita, 2022), academic research in this area is limited (Qin and Yang, 2022). The existing literature has focused on specific areas, such as the determinants of ESGBEC (Focke, 2022; Aresu et al., 2023), characteristics of sustainability-linked compensation targets (Kolk and Perego, 2014; Maas and Rosendaal, 2016), connections between ESGBEC and financial performance (Cohen et al., 2023; Bouteska et al., 2024; Bhatia and Gulati, 2024; Jatana, 2023), ESG performance (Baraibar‐Diez et al., 2019; Maas, 2018; Issa and Hanaysha, 2024), ESG disclosures (Hartikainen et al., 2021), CEO performance (Qin and Yang, 2022), sustainable practices (Adu et al., 2022), institutional ownership (Velte, 2024a) and firms’ use of ESGBEC for substantive or symbolic purposes (Keddie and Magnan, 2023; Cucari et al., 2023). The literature, however, remains fragmented due to diverse theoretical perspectives and research contexts and a focus on specific aspects of the ESGBEC research.

The main aim of our research is to provide a comprehensive understanding and identification of future research opportunities within the research field of ESGBEC, which we operationalize in the following research questions:

To address our aim, we have carried out a systematic literature review analysis (SLRA), grounded in systematic literature review (SLR) principles combined with bibliometric analysis (BA) and content analysis (CA) tools (Latella and Veltri, 2024; Nicolò et al., 2024). We then interpret the main results of our SLRA in the light of our own developed research framework, which provides a systematization of the literature on ESGBEC, allowing an integrative and critical overview of the literature.

The contribution of our study is manifold. First, in contrast with previous literature reviews (Winschel and Stawinoga, 2019; Velte, 2024a, 2024b), we have combined SLR and BA to offer a comprehensive overview of the research field, enhancing understanding of the scientific direction and uncovering potential gaps (Afeltra et al., 2022, 2024; Bellucci et al., 2022; Pizzi et al., 2020, 2021; Turzo et al., 2022). Second, we have conducted CA, which enables an in-depth examination of key insights, counterbalancing the limitations of BA alone. Indeed, BA provide an automatic classification of articles within clusters, while the use of a manual CA allows to mitigate possible bias by deeply scrutinizing the primary insights of the reviewed articles within the SLR and facilitate the discussion of results by identifying additional research streams (Songini et al., 2023; Nicolò et al., 2024). By combining SLR, BA and CA, our SLRA provides a comprehensive overview of a field of study, enhances scholars’ understanding of the current scientific debate, and successfully pinpoints possible research gaps and future lines of inquiry (Latella and Veltri, 2024). Third, we developed a conceptual framework in the light of which we interpreted the main results from the BA and CA and the future research directions (Brunelli et al., 2024; Thomas and Tee, 2022). Our framework extends previous literature (Velte, 2024b) proposing and deepening three generic building blocks: ESG inputs (observed at corporate, industry and country level), executive compensation structure (examined in terms of the financial or sustainable nature of key performance indicators, the time orientation, the qualitative or quantitative typology and their weight on the CEO compensation scheme) and corporate outcomes, divided into ESG-related outcomes and financial-related outcomes. Furthermore, the research framework improves our understanding of how CSR contracting practices lead to enhanced corporate performance, shedding lights on how to choose appropriate and effective ESG metrics to well-design performance-related CEO pay packages (Hou et al., 2025). Fourth, our study also elucidates future research directions for management scholars, so addressing the call for effective literature reviews able to go beyond the kind of contributions that synthesize, organize or map the field by providing outcomes such as research agenda and a conceptual framework (Marzi et al., 2025; Alegre et al., 2023; Öztürk et al., 2024; Lim and Kumar, 2024).

The article is organized as follows: Section 2 presents the most relevant theoretical frameworks within this research field; Section 3 describes the study’s methodology; Section 4 interprets the literature review findings in the light of our conceptual framework; Section 5 discusses theoretical and managerial implications, study limitations and future research directions; Section 6 concludes the study.

There are several theoretical motivations adduced by scholars for why companies adopt ESGBEC. The most prominent theoretical framework emerged within this research field is the agency theory. In a traditional agency-theoretic framework, shareholders care only about a company’s financial performance, and not about broader societal measures such as those reflected in ESG variables (Meckling and Jensen, 1976). Nevertheless, to the extent that ESG metrics are viewed as leading indicators of future financial performance and potential risks, existing agency models provide an efficient contracting rationale for ESG pay, able to improve financial and CSR performance (Berrone and Gomez-Mejia, 2009; Cohen et al., 2023; Flammer et al., 2019; Maas, 2018). Within the agency framework, in contrast with this view, some studies focused on whether basing compensation on CSR criteria is driven by agency costs, that is entrenched managers use CSR to advance personal interests (Jiraporn and Chintrakarn, 2013; Jouber, 2019; Hong et al., 2016; Ikram et al., 2023), exploring the possibility that the adoption of ESGBEC reflects rent extraction (i.e. inefficient contracting in the traditional agency-theoretic sense) (Bebchuk and Tallarita, 2022).

In contrast to the agency theory, the stewardship theory assumes that executives are self-motivated, being guided by the imperative of doing the right thing even if this does not increase their personal well-being. According to this perspective, executives have intrinsic rewards not driven by economic values (Davis et al., 1997). Relying on this theory, firms which adopt sustainable practices are less likely to provide CEOs with an incentive-based compensation as it may be ineffective, or even it may reduce their willingness to promote sustainability actions (Bhaskar et al., 2023; Francoeur et al., 2017).

The same consideration is also valid for stakeholder theory scholars, according to which firm value depends on the interests of all stakeholders (Donaldson and Preston, 1995; Freeman, 1984). In this theoretical framework, CEOs have the task to manage stakeholders’ needs, searching for the well-being of all stakeholders, which have intrinsic preferences for ESG-related outcomes (Freeman, 1984; Cohen et al., 2023). Therefore, CEOs have an intrinsic responsibility to be socially accountable, to satisfy stakeholders’ interests and enhance the relationships (reducing conflicts) between the companies and stakeholders, and this will be reflected in higher financial performance and firm value (Habib and Mourad, 2024). Within this theoretical framework, being executives intrinsically engaged with stakeholders and social issues, it is less likely for companies to adopt ESGBEC (Cai et al., 2011).

A theory connecting agency and stakeholder theoretical frameworks is the stakeholder agency theory, according to which the traditional problem of conflicts of interest between principal (shareholders) and agent (CEO) is transformed into a contractual relationship between various stakeholder groups and the executives (Hill and Jones, 1992). Relying on this framework, non-financial performance measures are incorporated into the CEO compensation system to promote alignment of interests among all the stakeholders, including the firm’s shareholders, and the executives, which are required to recognize stakeholders’ demands (Cohen et al., 2023; Velte, 2024b; Winschel and Stawinoga, 2019).

The usefulness to link ESG-related targets to CEO pay also depends on internal individual factors (upper echelon theory) and external contextual factors (institutional theory).

In the context of the upper-echelon theory, corporate social responsibility (CSR) values of the firms may be affected by CEOs’ individual beliefs, values, personal attributes (Hambrick and Mason, 1984). This theory is used especially in studies aimed at analyzing CEO greed, suggesting that greedy CEOs, with a short-termism focus, are less likely to engage with stakeholders, so to adopt a ESGBEC could be useful to achieve ESG-related outcomes. On the other hand, CEO with high social and ethical values intrinsically satisfy stakeholders’ needs, even if this means to sacrifice short-run returns in favor of long-term returns. In this case, the introduction of an ESGBEC could be ineffective (Sajko et al., 2021; Rehman and Hamdan, 2023).

According to institutional theory, firms are embedded in a nexus of formal and informal rules, ranging from strict political regulations to less formal constraints, that exert pressures to influence firms’ behaviors (Meyer and Rowan, 1977). These pressures can be coercive/regulative (i.e. government regulations) cognitive/educative/mimetic (i.e. behaviors of peers) and normative (i.e. global standards) (DiMaggio and Powell, 1983). Based on this theory, institutional factors such as the level of national environmental regulation, positively affect the adoption of ESGBEC by corporations (Francoeur et al., 2017). Some scholars within institutional theory (Adu et al., 2022; Haque and Ntim, 2020) adopted the neo-institutional theory approach, according to which firms could adopt ESGBEC policies for legitimation (symbolic) or efficiency (substantive) motives. On the basis of this theory, ESGBEC may be a symbolic practice which does not improve the actual sustainability performance (Haque and Ntim, 2020) or it may be a substantive practice which ultimately allow to achieve ESG performance (Adu et al., 2022).

The methodology of our article (SLRA), consistently with Latella and Veltri (2024) and Nicolò et al. (2024), combines, in a consequential flow, the technique of the SLR, whose output is the sample to analyze, and the techniques of analysis of the sample, both a quantitative technique (bibliometric analysis, BA) and a qualitative one (content analysis, CA).

The choice to combine SLR (Lim et al., 2022; Sauer and Seuring, 2023), and BA (Öztürk et al., 2024; Donthu et al., 2021), has been the object of a recent guideline article (Marzi et al., 2025), owing to the steady increase in academic production of articles combining both methods (Afeltra et al., 2024; Bellucci et al., 2022; Pizzi et al., 2020, 2021; Bilal et al., 2024; Lamboglia et al., 2021; Caputo et al., 2018; Agrawal et al., 2023).

The first phase of the SLRA returned a final sample to analyze. It has been carried out following a rigorous and reproducible research protocol (Pizzi et al., 2020; Tranfield et al., 2003), which involved the following steps (Afeltra et al., 2024; Bellucci et al., 2022; Pizzi et al., 2021):

• defining the scope of the analysis and research questions;

• searching for the literature, selecting the research database and keywords to use;

• applying filters to extract sample papers from the database (subject area; document type, publication stage; source type and language); and

• screening to evaluate papers’ inclusion or exclusion from the final sample.

Once the sample was identified, it was analyzed quantitatively (second phase) and qualitatively (third phase), with the aim to describe, examine and monitor the published research selected to provide an overview of the investigated field and to identify research clusters. The second phase was performed carrying out a bibliometric analysis (Öztürk et al., 2024; Donthu et al., 2021), composed of the following steps (Bilal et al., 2024; Lamboglia et al., 2021):

• descriptive statistics of the sample based on performance indicators;

• relationship between research constituents based on science mapping indicators; and

• identification of emerging research trends through science mapping indicators.

The third phase involved a content analysis, which was manually performed with the aim to provide a deep examination of the main insights of the articles included in the SLR reducing bias and increasing the scientific value of the review outcomes (Songini et al., 2023). The CA has been also used to identify additional topics with respect to the previous phases.

Summarizing, we followed a rigorous mixed methods approach to conduct the review. We used bibliometric analysis to map the field and supplement it with a qualitative manual content analysis to construct a more nuanced understanding of the ESGBEC issue.

Figure 1 illustrates the methodology used in our paper.

In the light of the research protocol in step (1), we translated the scope of the research into the RQ1 and RQ2.

To investigate these RQs, we needed a data set composed of pertinent papers. The data set is a final output of a process that needs a sample of relevant articles to address the RQs. In step (2), a careful search on the Scopus database, which is the most popular and suitable database for the literature review, was done to select the relevant papers (Afeltra et al., 2022; Pizzi et al., 2020, 2021). Therefore, adopting the Boolean operator (AND-OR), keywords related to CEO contracting and sustainability were used to select the relevant studies. To select the greatest number of studies, we conducted multiple searches after recognizing that many studies focused on tying executive compensation to non-financial criteria were not retrievable with the first query. Selecting the studies required that the chosen keywords were included in the title, abstract, keywords section. The selected keywords refer either to executive/CEOs compensation or ESG practices which allowed us to select articles focused on both topics. Moreover, and more importantly we included also keywords which refer to ESG criteria embedded within executive compensation.

In step (3), we applied the following filters: the search was limited to the “business management and accounting” subject area, excluding the other non-relevant subject areas; the document type “article”, the publication stage “final”; the source type “journal” and the language “English” (Nicolò et al., 2024). The initial results retrieved from Scopus comprised 348 peer-reviewed English journal articles.

Then, in step (4), the selected papers were evaluated to check their pertinence to the research topic (Afeltra et al., 2022; Caputo et al., 2021; Manes-Rossi et al., 2020). We developed different checks to improve the reliability of this work (Tranfield et al., 2003). According to a two-level methodology (Lamboglia et al., 2021), all the authors worked independently at this stage, manually examining the title and abstract of each article and – when necessary – its contents to verify their consistency with the research objectives. As a preliminary selection criterion, the authors agreed to select articles based on the relationship between executive compensation and ESG practices (both directions) and those focused on the drivers and the effects of ESGBEC. The articles were equally distributed among the three authors and each author analyzed 116 articles. All the authors held regular meetings to solve potential disagreements and doubts once a week for one month. During the meeting, doubts were raised on the inclusion/exclusion of specific articles. The articles in question were subjected to a vote and the inclusion/exclusion was decided by the majority. For instance, articles which discussed the moderating role of executive compensation were subjects of discussion during several meetings (in the end, they were excluded except when they focused on executive compensation linked to ESG criteria).

As agreement was achieved in a step-by-step manner, we did not consider carrying out formal reliability checking (Manes-Rossi et al., 2020). This process led us to exclude 214 articles from the data set because they were considered out of scope. Therefore, the final sample consisted of 134 journal articles.

Table 1 illustrates the phases of the SLR process.

To address RQ1, we carried out the two phases of the bibliometric analysis, namely, the performance analysis, that allowed us to outline the performance of different research constituents (authors, countries, journals) and to provide an overview of the volume and impact of the ESGBEC research (Pizzi et al., 2020; Bilal et al., 2024) and the science mapping, that allows an analysis of the relationships between research constituents, then, to visualize the collaboration networks between the relevant items (Öztürk et al., 2024; Donthu et al., 2021). In detail, we carried out a co-authorship analysis focused on the nationalities of authors who collaborate most in the ESGBEC field to identify the countries where co-authorships are concentrated (Galletta et al., 2022).

To address RQ2, we made use of two tools belonging to the science mapping analysis, a bibliographic coupling analysis (Galletta et al., 2022), based on the number of shared references within two papers, which indicates the degree to which these two articles are similar regarding their subject matter (Agrawal et al., 2023), that allowed us to highlight clusters of articles with a similar theme, and a trend topics analysis, based on tracking the frequency of authors’ keywords, which provides a distribution of key themes over time and allows insights into emerging research directions to be derived (Anwar et al., 2023).

VOSviewer (Van Eck and Waltman, 2010) and the R-package Bibliometrix (Aria and Cuccurullo, 2017), two of the leading packages of software used by scholars to conduct bibliometric analyses, were adopted to conduct the performance analysis and the science mapping analysis.

Content analysis is a technique enabling the researcher to extract information within documents and make valid inferences as to the contexts of their use (Krippendorff, 2004). In detail, we conducted a manual meaning-oriented content analysis, that is, we focused on the meaning and nature of themes contained in the articles of our sample (Beattie et al., 2004), to complement the automatic classification of articles within clusters provided by bibliometric tools, consistently with Songini et al. (2023). In detail, we applied a directed content analysis, which requires researchers to identify key concepts or variables derived by a theoretical framework as coding categories to validate our research framework (Hsieh and Shannon, 2005). To carry out content analysis, we read all the articles included in the sample in the light of our research framework attempting in revising the clusters emerged from BA and identifying additional research framework topics not previously identified through bibliographic coupling analysis. For instance, even though the impact of ESGBEC on ESG performance emerged as a topic from the bibliographic coupling analysis, the impact of ESGBEC on ESG disclosure was also explored but did not emerge from the bibliographic coupling analysis.

Each author read all the articles identifying several topics, providing the description of the topics and papers associated with each topic. The list of topics elaborated by each author was subjected to the judgement of the other two. First, the topics with 100% agreement were selected (i.e. four out of the six topics retrieved with the manual content analysis), while the topics deemed relevant only by one author (i.e. two topics) were excluded. The topics with 66.67% agreement (i.e. three topics) required further discussion. Some panel meetings among the authors were necessary to evaluate their relevance in the light of the initial research framework. In the end, another topic was further excluded, i.e. firm risk and CSR-executive compensation, both because it was not attributable to any specific topic within the research framework and the associated articles could be also included within topics identified with the bibliographic coupling analysis (e.g. the work which discussed environmental risk exposure was attributable also to the topic on the relationship between environmental aspects and executive compensation).

Finally, a final meeting was necessary to validate all the clusters, both those derived from the bibliometric analysis and from the manual content analysis.

To address RQ1, we made use of performance analysis indicators, able to return the performance of the research constituents (articles, journals, authors, countries), complemented with a co-authorship analysis, a science mapping indicator able to return the relationship between countries and authors.

Figure 2 shows the trend in the number of published articles on the investigated topic since 2001.

Concerning articles distribution over time, we noticed that, while the interest for the topic was relatively lukewarm at the beginning, with a number of published articles less than 10, there was a steady increase in scientific production starting from 2019, with a peak in 2023, with almost 40 articles, probably reflecting the increase in the adoption of the sustainable governance practice by firms and the subsequent growing interest by academic researchers on the topic.

Table 2 presents the top ten articles by the number of citations retrieved from Scopus.

As the results based on total citation could be misleading due to the consideration that older articles are more cited than recent ones, we added the column of the average number of citations per year (CPY). Also, CPY confirms the first three articles as the most relevant in ESGBEC research.

Table 3 outlines the journals that have most contributed to the advancement of ESGBEC research in terms of total citations and number of articles published. The papers published by the top ten journals account for about 41.5% of the total sampled papers. We found that the Journal of Business Ethics is the most influential journal in the ESGBEC domain, with the highest number of citations (993), six times the second most-cited journal, and an average citation score per article of 90. Among the most-cited journals, we found that finance and accounting journals that dealt with the topic (e.g. Journal of Corporate Finance) are less cited than journals focused on sustainability topics (e.g. Corporate Social Responsibility and Environmental Management).

Table 4 highlights the 10 most influential authors who characterize the ESGBEC research. As Table 4 shows, five authors have a very high number of citations. The first cited author, Daniel Minor (562 citations) published the highest number of documents (4) and coauthored articles with other authors in the list, such as Bryan Hong, Zichuan F. Li and Atif Ikram. The majority of authors are affiliated to American institutions, followed by Canadian and Chinese.

Figure 3 graphically illustrates the scientific production of a country, as determined by the country of affiliation of the authors of the sampled articles. The scientific production of a country, as depicted in the map, is determined by the country of affiliation of all the authors of the articles. For instance, it means that if an article is written by two Italian authors, then Italy’s scientific production increases by two. The map uses different shades of blue to represent the intensity of scientific production in each country, the more intense the blue color, the higher the scientific production of that country.

Table 5 translates into numerical terms the information provided by Figure 3, presenting the top ten most cited authors’ countries of affiliation. Table 5 shows the dominance of the USA as the most prolific country and a predominance of developed countries. This result may be the outcome of a higher level of awareness and demand for sustainable and responsible business practices among investors, consumers, and other stakeholders in developed economies, while many developing economies have fewer regulatory requirements related to ESG disclosure and reporting, which in turn leads to a reduction of the interest in researching ESGBEC.

Co-authorship analysis maps the research in the investigated field by visualizing the collaboration network among the authors. Within the article, we focused on authors’ countries of affiliation as the unit of analysis, including only countries with at least five documents. Table 6 summarizes the top 10 most interconnected countries, while Figure 4 visualizes the co-authorship network map, highlighting that mainly authors belonging to developed countries are used to collaborating with foreign researchers from other developed countries.

As shown in Table 6 and Figure 4, US authors collaborated with the highest number of different countries (i.e. number of links), followed by the UK and Canadian authors. These countries are also among the top 10 most cited countries. On the contrary, Chinese authors mainly collaborate among themselves: even though China is the second country for scientific production, only three documents were co-authored with foreign authors.

To address RQ2, we made use of two science mapping indicators, the trend topic analysis and the bibliographic coupling analysis. In detail, the bibliographic coupling analysis allowed us to identify the emerging research clusters. By content analyzing the articles in our sample, we validated and added other research clusters to the clusters emerged with the bibliographic coupling analysis.

To visualize the evolution of the trend topics in the last ten years, we selected a threshold of four as a minimum word frequency, that is only keywords that occurred at least four times during the entire period under inquiry (Caputo et al., 2021; Pizzi et al., 2020). Furthermore, we excluded from the analysis all the keywords used within the query searched on Scopus and aggregated synonyms. As a result, the scatter diagram (Figure 5) represents the top nine relevant keywords in the 2013–2023 period. Larger bubbles indicate higher keyword occurrences within a specific timeframe, while longer bars signify a more prolonged duration during which scholars referenced the respective keyword (Aria and Cuccurullo, 2017; Nicolò et al., 2024).

As we can see from Figure 5, initially the research focused on financial performance and on the theoretical framework of the study (i.e. agency theory, stakeholder theory). From 2019 onwards, researchers have shifted their attention from financial performance to firm value, environmental performance and CSR performance, where CSR performance is a more recent yet more investigated topic than environmental performance. Another recent but intensely investigated theme is “corporate governance” in terms of the impact of board of directors’ features on ESG contracting. Indeed, boards with stronger characteristics are more likely to implement a genuine ESG strategy (Harjoto and Wang, 2024; Khlifi et al., 2025).

Bibliographic coupling is an analysis that allows one to visualize the network between articles that share the same references, as the number of shared references within two papers indicates the degree to which these two articles are similar regarding their subject matter. We decided to conduct a bibliographic coupling analysis to identify the recent developments in the field as, contrarily to the co-citation analysis, that does not allow consideration of a new publication not yet cited, bibliographic coupling facilitates the analysis of recent research streams (Anwar et al., 2023). For our research we only considered papers that have been cited at least 20 times. This led to 46 coupled articles out of 134. Table 7 presents the top 10 coupled documents with the highest total link strength (the overall number of cited references shared with other papers in the sample).

The three documents with the highest number of total couplings are Hong et al. (2016), Derchi et al. (2021) and Callan and Thomas (2014). Moreover, Hong, Callan and Thomas were also listed among the most productive authors. As we can notice from the publication date of most coupled articles, this tool allowed us to identify the recent developments in the field.

Figure 6 illustrates the network visualization for bibliographic coupling documents. It reveals four well polarized thematic clusters (emerging research themes):

1. the impact of ESG factors on executive compensation structure (red cluster);

2. the relationship between environmental aspects and executive compensation (blue cluster);

3. the relationship between short-term versus long-term compensation structure and CSR performance (yellow cluster); and

4. the effect of ESGBEC on ESG performance (green cluster).

A manual CA allowed us to check for the right inclusion of journals articles within the automatically identified clusters through the bibliometric analysis and also gave us the opportunity to identify other research clusters. All the articles were divided among the three authors who independently read and manually analyzed their titles, abstracts and keywords, then at the end of this step they were exchanged as a further reliability measure (Bellucci et al., 2022; Caputo et al., 2018).

In a second phase, the manual interpretative CA has been used to identify other research clusters. Accordingly, a critical review of the most relevant contributions was conducted to discuss their main insights and complement bibliometric analyses’ outcomes to evidence emerging research directions. A final meeting was scheduled to revise all the clusters and reach a final consensus.

Taking into consideration not only recent but also older articles, the following six clusters emerged from CA (current research themes):

1. governance and institutional factors as drivers of ESGBEC;

2. the impact of executive compensation structure on environmental performance;

3. the impact of CEO power on the ESG performance;

4. the impact of ESGBEC on ESG disclosure;

5. the impact of ESGBEC on firm value; and

6. the impact of ESGBEC on financial performance.

The last stage of the SLRA is the interpretation of the findings and results (Župic and Ĉater, 2015). Performing analyses on the relevant literature revealing the relationship between scientific items and presenting related visuals represent the beginning stages; however, it is meaningful to determine the general trend of the research, showing the gaps in the literature and developing an agenda for future research (Öztürk et al., 2024). In the present section we, thus, critically discussed the main insights for each thematic cluster identified through the bibliographic coupling and the manual content interpretive analysis.

To interpret the results, we developed our own research framework (Velte, 2024a; Caputo et al., 2018) which provides a systematization of the literature on ESGBEC, allows an integrative and critical overview of the literature review findings and identifies future research avenues. The framework, consistently with Thomas and Tee (2022), proposes three generic building blocks: “ESG inputs”, “executive compensation structure” and “corporate outcomes”.

Within our framework, the “ESG inputs” box includes both ESG inputs which can enhance or inhibit the likelihood of linking CEO compensation structure to ESG criteria observed at corporate, industry and country level. Among the ESG corporate inputs, we can include environmental (e.g. related to carbon emissions), governance (e.g. related to board diversity), and socially oriented (e.g. related to employees’ welfare) company’s aims (Qin and Yang, 2022). At the industrial level, it is important to distinguish between heavily and not-heavily polluting industries, as previous studies found a higher presence of ESGBEC in carbon-intensive firms (Maas and Rosendaal, 2016). At the country level, it is important to distinguish between highly regulated and not highly regulated countries, as the use of CSR contracting was proven to increase in those countries with higher shareholder protection and social and environmental regulatory pressure (Aresu et al., 2023; Cohen et al., 2023).

As regards the central block (the executive compensation structure), the main features examined are the nature of key performance indicators (KPIs), that could be financial- or sustainability-related KPIs and in detail, environmental-, governance- and socially-related KPIs, their time horizons, as KPIs can be short-term (one year) or long-term (e.g. three years) oriented, type (quantitatively or qualitatively expressed) and their weight within the CEO compensation scheme, that is, the portion of ESG-based KPIs within an incentive plan (Cucari et al., 2023; Aresu et al., 2025).

As regards the corporate outcomes block, it includes both ESG-related outcomes, in turn divided into ESG-related performance (overall or measured for each ESG pillar) and ESG reporting, and financial-related performance, in turn divided into firm value (market performance and cost of equity capital) and accounting related measures. The choice to focus also on financial performance beyond ESG performance is due to the consideration that the enhancement of financial performance is the ultimate aim of corporations, and literature have revealed mixed results on the effectiveness of CSR contracting on corporate financial performance with some studies documenting positive effects of ESGBEC policies on financial outcomes (i.e. Flammer et al., 2019) and others founding no positive or even a negative association between ESGBEC policies and corporate financial performance (i.e. Cohen et al., 2023). Figure 7 graphically illustrates the framework of our research.

Positioning the 10 clusters identified within the research framework, Clusters 1, 2 and 5, are focused on the association between ESG inputs at corporate level and CEO compensation structure, while Clusters 3, 4, 6, 7, 8, 9 and 10 are focused on the association between executive compensation structure and corporate related outcome. Each cluster is described in a separate subsection.

Cluster 1 (red cluster) consists of studies that primarily investigated the impact of ESG inputs at the firm level on executive compensation structure. Jian and Lee (2015) conducted a large cross-country sample study to examine how CSR investment affects CEO compensation. Their findings revealed that when CSR is at its optimal level, CSR investments increase CEO compensation; conversely, excessive CSR investments result in lower compensation for CEOs. Li et al. (2016) showed that managers who over-invest in CSR to improve their reputation did not succeed. Dunbar et al. (2020) provided evidence that, when a firm’s CSR status improves, CEO compensation is adjusted to increase their risk-taking incentives. Karim et al. (2018) found that socially responsible firms tend to have a higher proportion of equity-based compensation and a lower proportion of cash-based compensation. Li et al. (2021) found that, when companies are owned by CSR-friendly mutual funds, there is an increased likelihood of linking CEO compensation to CSR. Abudy et al. (2023) results suggest that ESG adoption can better align executive incentives with shareholder interests, leading to more efficient compensation practices. Specifically, adopting ESG practices increases executive compensation, in particular, equity-based compensation.

Overall, the studies in Cluster 1 found that firms that implement socially responsible practices are more likely to implement long-term compensation as well as risk-taking incentives and CSR-linked compensation. The findings also suggest that if firms over-invest in CSR for reputational gains, this does not lead to compensation benefits. Thus, executives draw compensation benefits from CSR commitment as long as it is valuable for the firms. Furthermore, implementing ESG practices increases executive compensation by means of its equity-based part aligning the interests of managers with those of shareholders.

Papers included within Cluster 2 (blue cluster) analyze the relationship between various environmental aspects and executive compensation. Among the factors which were investigated by studies belonging to this cluster, there were environmental strategies (Berrone and Gomez-Mejia, 2009), green innovation (Flammer et al., 2019), environmental risk exposure (Campbell et al., 2007), environmental reputation (Stanwick and Stanwick, 2001), belonging to an environmental sensitive industry (Ikram et al., 2023). Berrone and Gomez-Mejia (2009) provided evidence that CEOs are rewarded for pursuing environmental strategies aimed at pollution prevention and end-of-pipe pollution control. Flammer et al. (2019) found that including non-financial criteria into executive compensation contributes to reduce environmental risk and to enhance green innovation. Campbell et al. (2007) provided evidence that linking CEO compensation to environmental performance significantly contributed to reduce the CEO’s personal environmental exposure risk so diminishing the firm’s environmental exposure premium. Stanwick and Stanwick (2001) provided evidence of an inverse relationship between CEO compensation and environmental reputation. Ikram et al. (2023) found that firms belonging to environmentally sensitive industries are more likely to adopt CSR contracting. Summarizing, studies included in Cluster 3 thus provided evidence that environmental aspects are related to the executive compensation structure. The results suggest that executives are rewarded more for positive risk-taking in pursuit of ESG goals (e.g. innovating in green technology), however tying compensation to ESG criteria induces a more cautious approach. Executives, aware that environmental performance is closely tied to their compensation, may become more conservative, choosing “safe” projects that are likely to meet ESG targets reliably but lack ambition in terms of broader impact.

Cluster 5 includes studies focused on the impact of governance and institutional factors on ESGBEC. A consistent number of studies provided evidence that a higher level of board monitoring, proxied by a greater percentage of independent directors, leads to the adoption of ESGBEC (Aresu et al., 2023; Ikram et al., 2023; Hong et al., 2016; Radu and Smaili, 2022). Liu et al. (2023) found that a gender diverse board enhances the probability of implementing ESGBEC. Radu and Smaili (2022) and Yang (2023) showed that the presence of a CSR committee as well as the sustainability expertise of a compensation committee are determinants for ESGBEC.

Other studies explored the ownership structure of firms that implement sustainability-related compensation schemes, finding conflicting results. In particular, some studies have found a positive relationship (Hong et al., 2016; Li et al., 2021) between institutional ownership and ESGBEC, while others have found no impact or even a negative one (Ikram et al., 2023). Schiehll and Bellavance (2009) provided additional evidence, finding a weak association between CEO ownership and the inclusion of ESG measures in CEO bonus plans. Aresu et al. (2023) revealed no impact of block-holder ownership on ESGBEC, except when it interacted with social and regulatory pressure. In addition, they found that firms located in countries with strong social and environmental regulatory pressure tend to conform to these standards, making them more likely to include CSR criteria in executive compensation contracts. According to Liao et al. (2021), also board reforms, including those focused on the improvement of board independence, support the inclusion of sustainability criteria in the executive compensation structure. More generally, Homroy et al. (2023) found that well-governed firms are more likely to adopt ESGBEC.

Overall, these findings evidence a positive association between board of directors features as well institutional factors and ESGBEC and a complex association between ownership structures and ESGBEC. Cluster 5 studies suggest that companies often implement a sustainable governance bundle which embed not only one mechanism, but all together (i.e. gender-diverse board, sustainable committees, ESGBEC). While the impact of board characteristics clearly influences the adoption of ESGBEC, the impact of ownership structure is not as well clear. As ownership structure does not consistently impact ESGBEC adoption, managers should engage with shareholders to tailor communication and transparency strategies to the unique priorities of different investor groups, rather than assuming that all institutional or blockholder investors will support or oppose ESGBEC.

The articles included in Cluster 3 (yellow cluster) focus on the different relationship regarding short-term compensation and long-term compensation with CSR. Long-term oriented compensation is supposed to increase CSR commitment while short-term incentives tend to reduce a firm’s CSR status (Sajko et al., 2021). The studies of Mahoney and Thorne (2005), Mahoney and Thorn (2006) revealed that a firm’s CSR level is positively affected by long-term incentives represented by stock options and slightly by short-term incentives proxied by bonuses. Sajko et al. (2021) found support for the hypothesis that the negative association between CEO greed and CSR is exacerbated by short-term incentives (e.g. annual bonuses); however, they failed to find support for the hypothesis that long-term oriented compensation mitigates this negative relationship. Callan and Thomas (2014) added evidence to this research field, by showing that social performance positively influences either short- or long-term remuneration, however, the effect is greater for the long-term measure. The study of Kang (2017) confirmed that long-term oriented compensation, as proxied by stock-based compensation, is effective in influencing CEO’s orientation toward CSR, which, in turn, enhances CSR performance.

Summarizing, the above studies found a positive link between CSR and long-term oriented forms of compensation, and an inverse relationship between short-term compensation and CSR. These results are consistent with Cluster 1 studies, suggesting that firms CSR commitment is positively linked with long-term forms of compensation, aligning the interests of executives with those of shareholders.

Cluster 4 (green cluster) includes articles focused on the impact of ESGBEC on ESG performance. The studies of Radu and Smaili (2022) and Derchi et al. (2021) assessed the impact of ESGBEC on ESG performance as proxied by scores provided by different rating agencies. Derchi et al. (2021) found that the ESG performance (measured MSCI ESG ratings) of firms which gained experience in using ESGBEC improved. Also, Radu and Smaili (2022) found a positive association between the ESGBEC and the ESG performance (measured by Bloomberg). Several studies included in the cluster dealt with a specific form of ESG performance: the environmental performance. Haque (2017) and Haque and Ntim (2020) conducted separate studies on UK firms and European firms, respectively, analyzing the impact of ESGBC on carbon performance, distinguished into substantive carbon performance (reducing carbon emissions) and symbolic carbon performance (carbon reduction initiatives). The findings from both studies indicated that ESGBC primarily influenced symbolic carbon performance rather than substantive performance. Also, Adu et al. (2022), examining the impact of ESGBEC on the substantive and symbolic environmental performance for a sample of UK companies provided evidence that ESGBEC had a substantive effect, leading to a reduction in carbon emissions. Cordova et al. (2021) found that implementing a compensation policy based on ESG performance in emerging countries positively influenced the likelihood of reporting carbon emissions but had no impact on reducing carbon emissions. Summarizing, the studies included in the cluster, while they generally found a positive impact of ESGBEC on ESG performance, also underlined that ESGBEC may have only a symbolic effect without any substantial impact, especially when it concerns environmental performance. Cluster 4 studies highlight that tying executive compensation to ESG criteria may be the driver of ESG deceptive practices which, instead of increasing executives’ commitment toward good environmental practices, lead them to “walk the talk”.

The studies included in Cluster 6 focus on the impact of executive compensation on environmental performance, as measured by carbon emissions. Beyond the studies of Haque (2017), Haque and Ntim (2020), Adu et al. (2022) and Cordova et al. (2021), Bose et al. (2023) investigated whether implementing climate change incentives for CEOs and other executives could impact climate change strategy and/or outcomes (i.e. carbon emissions). While a strong positive impact was observed in terms of plans and strategies, this did not translate into improved environmental performance as measured by carbon emissions except for US firms. Flammer et al. (2019) evidenced a negative influence of CSR contracting on emissions (i.e. a reduction) and also Gull et al. (2023) confirmed that, for US companies, ESGBC is an effective mechanism to enhance a firm’s environmental performance by lowering GHG emissions. Instead, Cohen et al. (2023) provided evidence, by using an international sample, that ESGBEC did not determine a change in emission. Also, Crichton et al. (2023) did not find any impact of ESGBEC on Scope 1 emissions. A positive impact of ESGBEC on carbon emissions was instead evidenced by Oyewo (2023) on a sample of multinational companies, suggesting that a too high or not achievable carbon emissions targets could discourage managers from achieving decarbonization goals. Al-Shaer et al. (2023) for a sample of UK companies, provided evidence that linking CEO compensation to CSR criteria improves firms’ commitment to reduce emissions. Finally, some papers focused on the effect of the CEO risk preference (proxied by his/her inside debt holdings defined as pension and other deferred compensation) and carbon emissions provided mixed findings. Hossain et al. (2023) found that CEO inside debt holding exacerbates emissions suggesting that CEOs tend to shield their deferred compensation, avoiding costly pollution control measures. Conversely, Benlemlih et al. (2022) evidenced that CEO inside debt improves firms’ commitment to reduce emissions. Jang et al. (2022) indicates that when executives pledge shares as collateral, it tends to result in weaker ESG performance for their firms. This practice, although not deliberately encouraged by the board of directors, creates low-powered incentives, reducing executives’ motivation to improve ESG outcomes.

Summarizing, studies on the effect of executive compensation on carbon emission reduction present mixed findings and those long-term oriented forms of compensation (e.g. ESGBEC as well as deferred compensation) tend to have a symbolic rather than substantive impact, unless they are US companies.

Studies included in Cluster 7 focused on the impact on ESG performance exerted by CEO power and CEO greed. Specifically, the authors used CEO pay slice, which is a fraction of the total compensation for top executives within a company, as a measure of CEO power. The studies of Jiraporn and Chintrakarn (2013), Jouber (2019) and Pucheta-Martínez and Gallego-Álvarez (2021) provided evidence of a positive correlation between CEO pay slice and ESG performance. Contrary to the positive association found with CEO pay slice, Sajko et al. (2021) and Rehman and Hamdan (2023) observed a negative relationship between CEO greed (measured with extraordinary compensation) and ESG performance respectively in US and Asian firms. Furthermore, they provided evidence that short-term incentives, such as annual bonuses, worsened this negative association, while long-term incentives, such as stock options, mitigated it.

A positive impact between CEO power (measured with high inside debt) and ESG performance has been found by Buchanan et al. (2021). Accordingly, CEOs with high inside debt adopt a long-term perspective and care more about the firm’s sustainability. Kang (2017) added evidence to this stream of the literature evidencing that CEO stock ownership enhances ESG performance pushing CEOs to take socially responsible and ethical decisions. Summarizing, the impact of CEO power on ESG performance appears to be positive.

Studies included within Cluster 8 investigated the impact of ESGBEC on ESG disclosure. Nandy et al. (2023) provided evidence, through a comprehensive study across multiple countries and industries, that linking CSR to executive compensation leads to greater adherence to GRI standards in the preparation of sustainability reports. Cordova et al. (2021) showed that implementing a compensation policy based on ESG performance has a positive effect on the likelihood of reporting carbon emissions. Tamimi and Sebastianelli (2017) reached similar findings, finding that tying executive compensation to ESG disclosure improves transparency in ESG disclosure. Dalla Via and Perego (2020) added further evidence to this finding by showing that executive compensation schemes tied to sustainability targets enhance the quality of sustainability assurance and, consequently, the reliability of non-financial disclosure. Velte (2023), investigating a sample of European companies from 2014 to 2019, found that ESGBEC had a positive impact on the level of biodiversity disclosure, strengthened by the chief sustainability officer’s sustainability expertise. Also, Haque and Jones (2020), investigating biodiversity disclosure in the context of European firms, found that ESGBC increased biodiversity disclosure, especially for GRI non-compliant firms. Overall, authors provided evidence of a positive impact of ESGBEC on ESG disclosure.

Studies included in Cluster 9 focused on the impact of ESBEC on firm value, in terms of reduction of the cost of equity capital or enhancement of the firm’s market value. According to the literature, higher ESG firms benefit from lower costs of equity capital, suggesting that investors perceive companies which implement sustainable practices as facing a lower level of risk (Mio et al., 2023), which in turn determines a higher firm value. Zouari-Hadiji and Chouaibi (2021) and Chouaibi et al. (2021) analyzed the impact of ESGBEC on the cost of equity capital. Zouari-Hadiji and Chouaibi (2021) investigated this relationship on a sample of 80 firms (mainly US firms) which were regarded to be the world’s most ethical companies in 2015. Their results, consistently with previous studies (e.g. El Ghoul et al., 2011; Ramirez et al., 2022) suggest that the sensitivity of executive compensation plans is a significant determinant of the cost of equity capital. On the contrary, Chouaibi et al. (2021) found no significant association between ESGBEC and firm value. Nandy et al. (2023), Flammer et al. (2019), Elbardan et al. (2023), Homroy et al. (2023) and Liu et al. (2023) analyzed the impact of ESGBEC on market value as proxied with Tobin’s Q. They found conflicting results, namely positive results for US companies (Flammer et al., 2019), negative (Nandy et al., 2023; Liu et al., 2023) or no impact (Elbardan et al., 2023; Homroy et al. (2023) for the other companies of the sample. In brief, the studies provided mixed evidence of the effect of ESGBEC on firm value.

Studies included in Cluster 10 focused on the impact of ESBEC on financial accounting-based performance. Cavaco et al. (2020) provided evidence of a detrimental effect of ESGBEC on financial performance, as measured by either ROA or ROE. Conversely, Cohen et al. (2023) reported no impact of ESGBEC on ROA, a conclusion reinforced by Bachmann et al. (2020) and Homroy et al. (2023). D’Apolito et al. (2019) observed either no influence on a sample of European banks or a negative influence on Irish and UK banks. Similarly, Khenissi et al. (2022) also noted no significant impact of ESGBEC on ROE, except for a negative effect when ROE is high. Finally, Tsang et al. (2021) found that CSR contracting amplifies the volatility of ROA. To synthesize, the collective findings suggest limited support for the hypothesis proposing financial benefits for companies from ESGBEC. Instead, in certain instances, a detrimental impact is observed.

Table 8 summarizes the clusters, the main articles within and the main insights.

Within corporate governance mechanisms, it is possible to distinguish among traditional governance mechanisms (e.g. board independence) and sustainable governance mechanisms. The latter differ from conventional corporate governance structures as they are specifically designed to integrate social and environmental considerations into the firm’s decision-making processes. In this article, we aim to analyze systematically and critically the relationship between a specific governance mechanism – executive compensation – and ESG practices. Particularly, we examine how ESG factors influence the structure of executive pay and, conversely, how the structure of executive compensation impacts ESG outcomes. Furthermore, our literature review delves into the drivers and outcomes of ESGBEC, offering a focused analysis in this context.

Regarding the drivers of ESGBEC, the findings highlight that the institutional environment surrounding the firm influence the probability of adopting ESG-based compensation. This supports the institutional theory suggesting that social and environmental pressures push firms to adopt practices which could enhance their legitimacy within its institutional context. The results of the literature review also show the dual role of ESGBEC as both a symbolic and substantive practice. This suggests that neo-institutional theory could be further developed to explore the conditions under which ESG initiatives become substantive rather than symbolic, potentially leading to genuine improvements in sustainability performance. It could be valuable to assess whether a symbolic impact is determined by the short-termism of ESG goals embedded within the executive compensation. Furthermore, it could be important to identify the proportion of ESG targets that determines a symbolic inclusion of ESG targets within executive compensation against a concrete substantive adoption. This literature review calls for the application of new theoretical frameworks such as a critical mass theory applied to the proportion of ESG targets in executive compensation.

The agency problem heightens the necessity for robust corporate governance mechanisms (Habib, 2023b). The adoption of ESG-linked compensation as well as stock options can represent a strategic response to align the long-term interests of executives with those of shareholders who increasingly prioritize sustainability (Sarhan and Al‐Najjar, 2023). It serves to modify the traditional principal-agent relationship, moving it beyond purely financial metrics and reflecting the growing recognition that shareholder value does not depend only on financial returns, but it can be also determined by a company’s social and environmental impact. Our review shows that ESGBEC does not align the interests of principal and agents given that its establishment does not drive either financial or ESG positive firms’ outcomes. From another point of view, the review shows findings aligned with agency theory as implementing ESG/CSR activities leads to higher executive compensation as highlighted by an increase in its equity-based component. This determines an alignment between shareholders and managers incentives.

The findings have practical implications for academics, managers and regulators. For company managers, which features characterize the design of an effective ESGBEC and whether (and under which conditions) ESGBEC is value enhancing could be useful.

Our study emphasizes that companies can tailor executive compensation structures based on the specific ESG factors most relevant to their industry and stakeholders. For instance, firms in carbon-intensive industries might prioritize environmental metrics, while those in consumer goods might focus on social impact. Companies should be able to identify which ESG factor, if linked to executive compensation, allow the achievement of the desired outcome.

The study could also help regulators orient their future work, evaluating the possibility of introducing mandatory ESGBEC, also considering country-specific features, as it is more probable that the use of CSR contracting increases, and it is more valuable in those countries (Anglo-Saxon countries) with higher shareholder protections and lower sustainability regulation.

In the European Union, the regulatory environment is perceived as stricter when it comes to environmental standards and sustainability practices, compared to other countries. This means that EU countries have comprehensive regulations and policies (e.g. the EU Green Deal) in place that force or incentivize organizations to adopt green management practices, which potentially reduces the influence of voluntary practices, such as environmental-based compensation. Additionally, the EU has regulatory coherence, meaning that there are common rules and standards across member states. This fosters a mimetic isomorphism where organizations within the EU tend to imitate each other to conform to these common practices. In this context, EU companies may already be motivated by a shared commitment to environmental stewardship due to institutional pressures, which decreases the incremental impact of environmental-based compensation. The EU places a strong emphasis on environmental sustainability as a normative expectation. On the other hand, the USA may have institutional logics that are more open to market-driven solutions such as environmental-based compensation. Indeed, the value relevance of this practice has been successful in the US context, especially when these initiatives align with broader societal expectations. Consequently, the effectiveness of compensation mechanisms and ESG practices could be determined by institutional factors such as the legal environment (Ariff et al., 2024).

The results of the studies also suggest implementing a robust “post-evaluation” mechanism within ESGBEC (Habib, 2023a). Policymakers should consider implementing stricter regulations and oversight concerning ESGBEC schemes. By enforcing transparency and accountability into how ESG practices are set and targeted within remuneration policies, the risk of symbolic ESG commitments that do not translate into genuine sustainability performance can be slightly mitigated.

The present study is not exempt from limitations. First, we deliberately focused our research on the “Business Management and Accounting” section of the Scopus database. Even though it is characterized by a larger journal coverage (Mongeon and Paul-Hus, 2016), this may lead to not considering the entire universe of research related to this field. A future direction could thus consider merging the Scopus and WOS database. Second, we focus only on peer reviewed academic journals, excluding books, book chapters and conference papers, so limiting the scope of our research. Although this is commonly considered a quality indicator, future analyses could include these publications to collect further evidence. Third, the subjective choices of researchers, in terms of keywords and tools to analyze the sampled articles could have introduced a certain degree of subjectivity in the analysis, even if we followed the best practices in SLRA to ensure consistency in our results. Further research could consider using different keywords and filters and to go deeper into co-author relationships and networks through co-occurrence and co-citation analyses to obtain greater, more nuanced information. Indeed, had the research been conducted using different criteria, it might have led to different results. Fourth, we identify the clusters with the bibliographic coupling tool, which facilitates the analysis of recent research streams. This could lead to excluding some relevant old papers. However, we dealt with this potential limitation by implementing a manual content analysis. Fifth, the study’s results were generated using VOSviewer and Bibliometrix. Although they are among the most used and reliable software for performing bibliometric analyses, it would be interesting to complement our study results using other tools. Finally, we derived the clusters’ main insights and the future research directions in the light of our research framework, so hiding other potential issues to investigate. A future study could analyze which intellectual foundations are primarily cited to unveil the dominant theoretical paradigm in the current state of research.

In this section, according to trend topic analysis evidence and the main insights deriving from the cluster analysis, we outline the potential opportunities for future research, in the light of our conceptual framework.

Our research framework identifies three blocks, namely, ESG inputs, executive compensation structure and ESG outputs (and their relationships).

As regards the ESG inputs, we can summarize that they have been studied mainly at corporate level. Among the corporate factors hypothesized to affect ESGBEC, a relevant research stream focuses on governance factors (e.g. board independence, gender diversity, the existence of a CSR committee). Governance drivers of ESGBEC represent an emerging trend topic, thus future studies could investigate whether a critical number of women enhances the likelihood of implementing ESGBEC. Furthermore, future studies could assess whether a different form of board diversity (e.g. experience, age, education, ethnicity, culture, tenure and religious belief) affect the likelihood of implementing ESGBEC. In terms of ownership structure, future research could explore whether family ownership influences the adoption of ESG-based compensation in firms. Specifically, it would be valuable to examine whether family-controlled firms, which might prioritize personal interests over broader corporate reputation (Agustina and Barokah, 2024), are less inclined to implement ESGBEC compared to non-family firms.

The research focused on industry and country ESG factors is less developed, nevertheless it should be considered that the mixed findings of the articles focused on the impact of ESGBEC on ESG performance could be related to industry and country factors. In the literature, it has been observed that environmentally sensitive sectors, such as the utilities sector, are among those most inclined to incorporate ESG metrics into executive compensation (Imperatore and Franco, 2024; Keddie and Magnan, 2023); nevertheless, while some works considered sub-sample of environmental sensitive firms (e.g. Sarhan and Gerged, 2023) or included a dummy for environmentally sensitive industries (e.g. Cordova et al., 2021), only few quantitative studies focused only on these industries (e.g. Berrone and Gomez-Mejia, 2009). A future research stream should thus focus on environmentally sensitive sectors, which are more likely to adopt ESGBEC.

As regards the executive compensation structure, studies mainly focused on the ESG metrics used to link CEO pay to ESG performance. There is skepticism regarding the effectiveness of ESG metrics in truly driving sustainable behavior, with concerns about the potential for manipulation by managers (Imperatore and Franco, 2024), CEO power also being a recent trend topic. The ESG measures should be adequately calibrated and reflect relevant ESG issues for the company. Therefore, ESG metrics linked to executive compensation should be identified based on a materiality analysis similar to what companies implement for reporting ESG issues. Additionally, relevant metrics should be identified according to industry-specific criteria, as the adoption of ESG metrics varies not only between countries but also across different sectors, with higher integration of ESG metrics in CEO pay in emission-intensive sectors, owing to their greater exposure to environmental issues (Aresu et al., 2025). In this regard, the ESG metrics outlined by the Sustainability Accounting Standards Board (SASB) may be a useful tool. Another research stream searched for different effects deriving from short-term and long-term incentives, where several studies found that even other long-term type of executive compensation (e.g. inside debt) are able to determine only a symbolic effect on ESG performance. Future studies, instead of focusing separately on different features of the executive compensation structure, could focus on the effective design of ESGBEC, considering together the choices related to the selection of ESG measures, time frame, target (which refers to the value or range the payout is connected to) and weight, which is the portion of ESG measures within a specific incentive plan. The design of these features can impact the ESGBEC substantive or symbolic role, signaling the extent to which sustainability-related goals are crucial in the overall remuneration or a mere legitimization tool adopted by the company, and future research should deal with this issue (Aresu et al., 2025). An unexplored research area is represented by the disclosure of how executive compensation is designed. Future research could investigate whether firms provide extensive disclosure about how executive compensation is designed and how ESG incentives are defined.

Regarding the corporate related outcomes, we can broadly distinguish between studies focused on the impact of ESGBEC on financial related outcomes and studies focused on the impact of ESGBEC on ESG related outcomes. The first research stream is a less recent and researched topic, mainly focused on the impact of ESGBEC on the cost of equity capital. Future research could examine whether ESGBEC affect the corporate cost of debt. On the other hand, the ESG performance is an increasingly researched topic, both as overall ESG performance and as environmental performance. Environmental performance is a topic that has been developed uniformly over the years and currently a very important research stream is devoted to investigating the impact of ESGBEC on environmental performance. Furthermore, a future research stream could attempt to study the impact of ESG pay on different performance measures (e.g. firms’ efficiency) or on performance measures which combine environmental efficiency and economic efficiency (Janicka and Sajnóg, 2023). For instance, it would be interesting to observe its impact on firms’ eco-efficiency, to evaluate whether tying executive compensation to ESG criteria pushes firms to create more value with fewer resources and less environmental impact, that is, the ability of firms to reach a high economic/financial performance while reducing their environmental impacts. Furthermore, given that sampled studies tested the relationship between ESG inputs/outcomes and executive compensation structure in both directions, it is plausible that there is a bidirectional relationship. Therefore, future research could incorporate rigorous causality tests, such as quasi-natural experiments using the difference-in-difference approach, two-stage least squares models, instrumental variables and dynamic panel regressions. Another stream of the literature identified within this block is the impact of ESGBEC on ESG disclosure. Table 9 illustrates the main future research directions related to the dimensions of our research framework.

The relationship between ESG and executive compensation has garnered significant attention in academic research, thus representing a good field of research to carry out a literature review synthetizing the main finding and providing avenues for future research. Our review identifies several topics: the impact of ESG factors on executive compensation structure; the relationship between environmental aspects and executive compensation; the relationship between short-term versus long-term executive compensation and CSR performance; the effect of ESGBEC on ESG performance; governance and institutional factors as drivers of ESGBEC; the impact of executive compensation structure on environmental performance; the impact of CEO power on the ESG performance; the impact of ESGBEC on ESG disclosure; the impact of ESGBEC on firm value; the impact of ESGBEC on financial performance.

ESGBEC refers to integrating such concerns into the environmental- and social-related targets of executive remuneration contracts (Cohen et al., 2023). Through adopting ESGBEC, firms and their stakeholders can monitor the short-and long-term goals reached by key figures (CEOs) in sustainability-oriented initiatives and outputs (Aresu et al., 2025). Previous studies have shown that ESGBEC has become more prevalent over time (Flammer et al., 2019) and that it varies significantly in different industries and countries (Derchi et al., 2021). Nevertheless, the existing literature is scant, fragmented (focused on drivers or the ESGBEC design or the effect on corporate outcomes), mainly focused on a unique institutional setting, namely, Anglo-Saxon countries, and come out with mixed findings (some studies provided evidence the ESGBEC is value enhancing, some others not).