ESG Performance, Donations and Internal Pay Gap—Empirical Evidence Based on Chinese A-Share Listed Companies

This paper investigates the impact of corporate ESG performance on internal pay gaps using data from Chinese A-share listed companies from 2013 to 2023. Our study finds that, after controlling for relevant variables and fixed effects for firms and years, corporate ESG performance significantly widens the internal pay gap. To address endogeneity concerns, we use policy shocks, construct instrumental variables with the number of ESG investment fund holdings, and apply propensity score matching methods, all of which support our main findings. Furthermore, the negative impact of ESG performance on internal pay equality is mainly driven by compensation incentives and corporate financialization. Heterogeneity analysis shows that the negative effect of ESG performance on internal pay gaps is less pronounced in state-owned enterprises (SOEs) and non-manufacturing firms. Additionally, charitable donations and strengthened agency mechanisms can effectively mitigate excessive internal pay gaps. This paper offers a novel theoretical perspective on corporate sustainable development and provides significant implications for internal pay policy formulation and governmental policies aimed at reducing income inequality.