CSR-Contingent Executive Compensation Contracts

62 Pages Posted: 21 Aug 2017 Last revised: 25 Sep 2019

See all articles by Atif Ikram

Atif Ikram

Arizona State University (ASU) - W.P. Carey School of Business

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Dylan Minor

Anderson School of Management (UCLA)

Date Written: September 24, 2019

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 social responsibility, CSR-contingent compensation, executive compensation, corporate governance

Suggested Citation

Ikram, Atif and Li, Zhichuan Frank and Minor, Dylan, CSR-Contingent Executive Compensation Contracts (September 24, 2019). Journal of Banking and Finance, 2019, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3019985 or http://dx.doi.org/10.2139/ssrn.3019985

Atif Ikram

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

Zhichuan Frank Li (Contact Author)

University of Western Ontario - Ivey School of Business ( email )

1151 Richmond Street North
London Ontario, Ontario N6A 3K7
Canada

Dylan Minor

Anderson School of Management (UCLA) ( email )

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

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