Do Contracts Make Them Care? The Impact of CEO Compensation Design on Corporate Social Performance

Jean McGuire (), Jana Oehmichen (), Michael Wolff () and Roman Hilgers ()
Additional contact information
Jean McGuire: Louisiana State University
Jana Oehmichen: Georg-August University Göttingen
Michael Wolff: Georg-August University Göttingen
Roman Hilgers: Georg-August University Göttingen

Journal of Business Ethics, 2019, vol. 157, issue 2, No 6, 375-390

Abstract: Abstract Using the behavioral agency model, we analyze how two compensation design characteristics, pay-performance sensitivity and duration of CEO compensation (taking into account multiple vesting periods), affect corporate social performance. We find that the performance sensitivity of CEO pay is negatively associated with poor social performance but also negatively affects strong social performance. These results suggest that pay-performance sensitivity increases the relevance of potential negative consequences of poor social performance. However, the ‘insurance’ benefits of strong social performance may also become less relevant. With respect to the duration of CEO compensation, we find that it reduces poor social performance. This finding confirms arguments that a long-term compensation time horizon increases the perceived threat that the negative effects of poor social performance will become visible. With our findings, we integrate behavioral agency theory with the traditional stakeholder views.

Keywords: Corporate social performance; CEO compensation; Pay duration; Pay-performance sensitivity; Behavioral agency (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s10551-017-3601-8

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