CSR-contingent executive compensation contracts

Atif Ikram, Li, Zhichuan (Frank) and Dylan Minor

Journal of Banking & Finance, 2023, vol. 151, issue C

Abstract: Firms have increasingly started tying their executives’ compensation to CSR-related objectives. In this paper, we attempt to understand why firms offer CSR-contingent compensation and the conditions under which such compensation improves corporate social performance. Using hand-collected data from proxy statements, we find that this emerging compensation practice varies significantly across industries and across different CSR categories. Further, well-governed firms are more likely to offer CSR-contingent compensation, and such compensation does lead to higher corporate social standing. Such firms are more likely to offer formula-based, Objective CSR-contingent compensation. However, our results suggest that non-formulaic, Subjective CSR-contingent compensation also helps improve companies’ social performance when firm outcomes are more volatile and unpredictable, and therefore executives’ effort and performance are harder to evaluate, and when firms have better corporate governance.

Keywords: Corporate governance; Corporate social responsibility; CSR-contingent compensation; Executive compensation (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:151:y:2023:i:c:s0378426619302304

DOI: 10.1016/j.jbankfin.2019.105655

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