Are CEO incentives for corporate social responsibility really effective?

Abstract

Calls for corporations to act more socially responsible have increased in intensity in recent years. As a result, in an effort to improve corporate social performance, companies have begun to introduce monetary incentives for executives to improve their firms’ CSR engagement. However, insights from stewardship theory, behavioral research into the motivational effects of monetary incentives cast doubt on the supposed effectiveness of such CSR incentives. I argue that these new incentives, by fostering extrinsic motivation and an instrumental decision frame among executives, and crowding-out intrinsic and pro-social motivations, foster symbolic CSR efforts by managers, instead of improving substantial CSR implementation. The analysis of a panel dataset of roughly 1300 large, publicly traded corporations in the US nonfinancial sector over the period form 2002 until 2015 shows that CSR incentives for CEOs only increase the adoption of formal CSR policies, but do not lower the risk of corporate irresponsibility scandals.