Do Corporate Social Performance Targets in Executive Compensation Contribute to Corporate Social Performance?

Abstract

To deal with potential conflicts between the triple-bottom-line expectations of investors and the performance of executives, firms can use incentives by integrating corporate social performance (CSP) targets into executive compensation. No evidence yet exists that CSP targets in executive compensation actually lead to an improvement of CSP results. Using a panel data set of 400 firms for the years 2008-2012 leading to 1846 firm-year observations, the relationships between CSP targets and CSP results and CSP improvements are analyzed. The results show that (a) the level of CSP has no effect on the use of CSP targets, (b) the use of CSP targets in general does not automatically lead to better CSP results, and (c) the use of quantitative, hard CSP targets is an effective way to improve CSP results, especially to lower CSP weaknesses.

CEO Compensation and Sustainability Reporting Assurance: Evidence from the UK

“…Berrone and GomezMejia (2009b) argue that the mixed findings in terms of the association between CEO compensation and social performance could be related to social performance measurement. Maas (2015) argues that companies can use incentives by integrating corporate social performance targets into executive compensation. Maas and Rosendaal (2016) examine the inclusion of sustainability targets in executive compensation using 490 listed companies from 11 countries and find companies use sustainability targets that focus on social issues in their remuneration plans.…”

“…According to stakeholder theory, compensation committees will respond to pressures from stakeholders including environmental activist and social investment funds by explicitly using social targets in CEO compensation (Maas 2015). Although compensation schemes mainly focus on financial metrics and tend to disregard the value to other stakeholders, inclusion of non-financial metrics may lead to good sustainable performance and enhance corporate survival (Baron 2008).…”

Incentive Plans, Pay-for-non-financial Performance and ESG Criteria: Evidence from the European Banking Sector

“…In this regard, Maas (2016), focusing on about 400 companies for the years 2008-2012 (for a total of 1,846 observations), highlights two very interesting aspects. On the one hand, the level of ethical performance, which characterizes an enterprise, does not seem to have a predictive value for the use of non-financial metrics; on the other, the inclusion of such Key Performance Indicators (KPIs), especially if specific quantitative targets are associated with them, represents a concrete way to improve CSR (Nota 4).…”

“…However, recent research has also begun to develop a further profile of analysis aimed at analyzing existing relationships between variable remuneration and some non-financial performance indicators (or non-financial performance indicators) associated with social and ethical value (Nota 3) produced by enterprises (Uni PRI, 2012;Maas, 2016). This second set of research is based on the stakeholder theory in which the conduct of the CEO and all the Top Management and also their remuneration packages must reflect not only the shareholders expectations but also that of all other stakeholders.…”

“…50). At the doctrinal level, however, literature has not as yet gone into enough depth: up till now a few works analyze this particular aspect of the managerial pay and among these no research investigates only the banking sector Miles and Miles, 2011;Maas, 2016), probably due to the (on going) poor propensity of the financial firms to use such qualitative criteria (Abdelmotaal and Abdel-Kader, 2016).…”