Corporate social responsibility and executive compensation: exploring the link

Abstract

PurposeThe purpose of this paper is to explore whether socially responsible firms recognize the potential conflicts that come with higher levels of executive compensation, and thus limit executive pay relative to what is being paid in other firms. In the process, the relationships between executive compensation and financial performance, and corporate social performance and financial performance are examined to determine whether potential compensation and social performance links are coming at the expense of company financial performance.Design/methodology/approachThe empirical data for this research were obtained from a stratified sample of Fortune 1000 companies pulled from across more than 15 industries. Multiple regression analysis is utilized to test three hypotheses.FindingsIn line with the hypotheses, results indicate that companies identified as good corporate social performers do in fact have lower levels of executive compensation and there is some support found for a positive relationship between social and financial performance.Practical implicationsThe results provide support for the view that firms concerned about social responsibility can put restrictions on executive compensation and still achieve good financial performance, and make a case that executive compensation should in fact be a concern of all socially responsible firms.Originality/valueThere are few studies that examine the direct link between executive compensation and corporate social responsibility. This study addresses this gap in the literature and adds to the discussion as to whether socially responsible firms might seek to better balance compensation across the firm and emphasize that profit, both individual and corporate, must be earned within a system that is fair and balanced for all.