Corporate social responsibility and executive compensation: exploring the link

Abstract

Purpose-The purpose of this paper is to explore whether socially responsible firms recognize the potential conflicts that come with higher levels of executive compensation, and thus limit executive pay relative to what is being paid in other firms. In the process, the relationships between executive compensation and financial performance, and corporate social performance and financial performance are examined to determine whether potential compensation and social performance links are coming at the expense of company financial performance. Design/methodology/approach-The empirical data for this research were obtained from a stratified sample of Fortune 1000 companies pulled from across more than 15 industries. Multiple regression analysis is utilized to test three hypotheses. Findings-In line with the hypotheses, results indicate that companies identified as good corporate social performers do in fact have lower levels of executive compensation and there is some support found for a positive relationship between social and financial performance. Practical implications-The results provide support for the view that firms concerned about social responsibility can put restrictions on executive compensation and still achieve good financial performance, and make a case that executive compensation should in fact be a concern of all socially responsible firms. Originality/value-There are few studies that examine the direct link between executive compensation and corporate social responsibility. This study addresses this gap in the literature and adds to the discussion as to whether socially responsible firms might seek to better balance compensation across the firm and emphasize that profit, both individual and corporate, must be earned within a system that is fair and balanced for all.

Executive Compensation, Sustainability, Climate, Environmental Concerns, and Company Financial Performance: Evidence from Indonesian Commercial Banks

“…Recently, most results appear to partially support such a relationship between executive compensation and corporate sustainability. Some findings show that the direct relationship indicates a positive result [33,[35][36][37], whereas others have documented that this relationship implies negative results [34,38,39] and is also investigated for a pay-environmental performance relationship only [40][41][42][43].…”

CEO Compensation and Sustainability Reporting Assurance: Evidence from the UK

“…Stanwick (1998, 2001) find a negative relationship between CSR performance and compensation measured using annual salaries and bonuses, while Cai et al (2011) examine the impact of corporate social performance on executive compensation using a sample of large US firms covering the period 1996-2010 and find CSR adversely affects both total compensation and cash compensation. Collett Miles and Miles (2013) and Frye et al (2006) compare CEO compensation among socially responsible firms and nonsocially responsible firms and find the link between CEO pay and firm performance is weaker for socially responsible firms.…”

CEO Compensation and Firm Performance: The Role of ESG Transparency

“…CEO acts as a nexus between the stakeholders and encourages greater CSR engagement rather than being too much concerned about its own benefit (Cai et al, 2011). ESG firms carrying out CSR activities is proved to reduce cash-flow risk and is also being used as an intangible asset for a long-term purpose to benefit the interest of all the stakeholders (Chan et al, 2014;Gao & Zhang, 2013;Miles & Miles, 2013;Mukhtaruddin et al, 2019;Ronald et al, 2019). While CSR represents efforts made by the company to create a positive impact to the internal as well as external stakeholders; ESG disclosure is a systematic assessment of such activities carried out by the organization.…”