Board-Level Employee Representation and Corporate Sustainability: ​A Focus on Executive Compensation Programs

Abstract

This paper explores the impact of board-level employee representation (BLER) on Corporate Social Responsibility (CSR) contracting, specifically the integration of precise non-financial criteria into top executive officers’ compensation. We use the enactment of two laws (in 2013 and 2015) that mandated the presence of employee directors in large French companies to identify a causal impact in a staggered difference-in-differences design. Our findings show that the appointment of employee directors significantly increases the likelihood of implementing CSR contracting, especially when these directors are members of the compensation committee. However, we also find a modest impact of BLER on overall non-financial performance. These results suggest that while the influence of employee representatives may be limited due to their small number (usually 1 or 2), they can still impact specific, dedicated tasks within the firm. This study opens up avenues for future research to delve deeper into the role of employee representation in corporate governance and CSR contracting.

Keywords: board-level employee participation, corporate social responsibility contracting, executive compensation, compensation committee, staggered difference-in-differences