Abstract
This paper examines the relationship between CEO compensation and corporate social irresponsibility (CSiR) by examining the perceptions of fairness or unfairness of CEO compensation structure. Infusing the integrative model of organizational trust with the bounded self-interest agency theory and the stakeholder-agency theory, we progress the distributive unfairness hypothesis and the procedural unfairness hypothesis to suggest that perceptions of distributive and procedural unfairness in compensation structure influence the severity with which CEOs view firms as opportunistic towards them. Using a sample of 8,873 observations across 849 U.S. firms between 2001-2018 and sophisticated empirics, we theorize and empirically demonstrate how CEO perceptions of firm opportunism trigger negative reciprocity behaviours, manifesting in increased firm-level CSiR. Furthermore, we find the prevalence of reinforcing and counter-balancing effects through which the interactions between distributive and procedural unfairness impact the CEO compensation-CSiR relationship. Our paper contributes to the literatures on CEO compensation and corporate misconduct and has important implications for the design of executive compensation packages.
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