Corporate Governance and the Rise of Integrating Corporate Social Responsibility Criteria in Executive Compensation: Effectiveness and Implications for Firm Outcomes

40 Pages Posted: 1 Sep 2016 Last revised: 30 Dec 2018

See all articles by Caroline Flammer

Caroline Flammer

Columbia University; National Bureau of Economic Research (NBER)

Bryan Hong

Henry W. Bloch School of Management, University of Missouri-Kansas City

Dylan Minor

Anderson School of Management (UCLA)

Date Written: December 27, 2018

Abstract

This study examines the integration of corporate social responsibility (CSR) criteria in executive compensation, a relatively recent practice in corporate governance. We construct a novel database of CSR contracting and document that CSR contracting has become more prevalent over time. We further find that the adoption of CSR contracting leads to i) an increase in long-term orientation; ii) an increase in firm value; iii) an increase in social and environmental initiatives; iv) a reduction in emissions; and v) an increase in green innovations. These findings are consistent with our theoretical arguments predicting that CSR contracting helps direct management’s attention to stakeholders that are less salient but financially material to the firm in the long run, thereby enhancing corporate governance.

Keywords: corporate governance, corporate social responsibility, executive compensation, managerial incentives, long-term orientation

JEL Classification: D9, G3, J3, M1, M5, Q5

Suggested Citation

Flammer, Caroline and Hong, Bryan and Minor, Dylan, Corporate Governance and the Rise of Integrating Corporate Social Responsibility Criteria in Executive Compensation: Effectiveness and Implications for Firm Outcomes (December 27, 2018). Available at SSRN: https://ssrn.com/abstract=2831694 or http://dx.doi.org/10.2139/ssrn.2831694

Caroline Flammer (Contact Author)

Columbia University ( email )

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New York, NY NY 10027
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HOME PAGE: http://www.columbia.edu/~cf2870/

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Bryan Hong

Henry W. Bloch School of Management, University of Missouri-Kansas City ( email )

5110 Cherry St
Kansas City, MO 64110
United States

Dylan Minor

Anderson School of Management (UCLA) ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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