In recent years, as environmental pollution and climate change have become increasingly prominent, ESG (environmental, social, and governance) has rapidly developed globally, becoming a hot topic widely studied by scholars both domestically and internationally. Research has found that ESG performance in enterprises has a significant positive impact on corporate performance and long-term value. However, fewer studies have focused on the impact of ESG performance on income disparities among different groups within enterprises. Enterprises, as important participants, play a crucial role in narrowing the income gap among residents. Therefore, it is worth exploring whether the ESG advantages demonstrated in promoting sustainable economic development and actively fulfilling social responsibilities will widen or narrow corporate compensation disparities. This paper uses data from the WIND database and the CSMAR database, referencing the methodology of Mao Qilin and Wang Yueqing (2023), and employs the ESG rating of the Huazheng Index as the primary measure of corporate ESG performance. The rating indicators are quantified, assigned values ranging from 1 to 9, to explore the potential impact of improved ESG performance on internal income distribution and its transmission channels within enterprises. Empirical research finds that improved ESG performance widens the compensation gap within enterprises. After considering alternative key variables, endogeneity issues, and the influence of employee structure, the regression results remain robust. Mechanism analysis reveals that improved ESG performance widens the compensation gap by strengthening the bargaining power of executives and increasing their risk-taking levels. Further analysis indicates that the widening effect of ESG performance on compensation gaps is more pronounced in enterprises with low employee bargaining power, high environmental sensitivity, high-tech enterprises, and large firms. Compared with previous literature, this paper makes several extensions. Firstly, it reveals the relationship between ESG performance and corporate compensation gaps in the context of sustainable development, supplementing the literature on factors influencing corporate compensation gaps. Secondly, it explores the role of corporate ESG performance in the corporate compensation governance system from the perspective of internal pay gaps, enriching the literature on the economic consequences of ESG performance. Thirdly, it investigates the income distribution effect of ESG performance and further clarifies its mechanism, providing decision-making references for promoting the construction of a more equitable and sustainable compensation system within firms. This study reveals, to some extent, the relationship between ESG performance and corporate compensation gaps and their underlying logic. It helps promote efforts to optimize executive compensation appraisal systems while increasing the intensity of ESG construction and providing risk compensation for executives. It also provides insights for effectively coordinating management mechanisms for executive evaluation and incentives and enhancing the transparency of compensation distribution between executives and employees.