What Determines Strategic Alignment in ESG-Linked Remuneration? Evidence from EUROSTOXX600

This paper examines the determinants of strategic alignment in ESG-linked executive remuneration. Drawing on neo-institutional theory, we develop the ESG Strategic Incentive Assessment Index (ESG-SIAI), a novel measure capturing the extent to which ESG metrics embedded in executive pay are aligned with firms’ disclosed sustainability priorities. Using an unbalanced panel of 572 EURO STOXX 600 firms over the period 2022–2024, combined with original content analysis of annual reports, we estimate random effects panel models linking ESG-pay alignment to board characteristics and financial constraints. The results show that board independence, sustainability committees and CEO–chair duality, are not associated with ESG-pay alignment. In contrast, gender diversity is positively related to alignment in cross-section, while financial leverage is strongly and negatively associated with alignment across specifications. These findings suggest that strategic alignment in ESG-linked remuneration is not shaped by formal governance structures but by governance orientations and firms’ financial capacity