CSR Compensation Contract and CSR Ratings

29 Pages Posted: 10 Mar 2021

See all articles by Zhichuan Frank Li

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Jun Wang

University of Western Ontario - DAN Department of Management and Organizational Studies

Yuqing Zhao

University of Western Ontario

Date Written: March 2, 2021

Abstract

We examine executive compensation contracts that are directly and explicitly linked to corporate social performance. In particular, we study two types of such contracts, subjective and objective, and the CSR-related variables on which compensation is contracted. We attempt to find which type and underlying CSR variables can most effectively improve CSR ratings. Our results suggest that for objective contracts and subjective contracts, the best performing variables are ethical conduct and social responsibility, respectively. In addition, we study how CSR ratings affect firm performance and risk, and how CSR contracts moderate the effects. We find that both large and small firms with high CSR ratings tend to have a better financial performance in terms of ROA and net profit margin, but the impact of CSR is more pronounced for small firms. CSR contracts in general reduce the impact of CSR ratings on firm performance and risk.

Keywords: Corporate Social Responsibility, Compensation Category, CSR Contract, Social Performance, Financial Performance, Financial Risk

JEL Classification: G30; G38; M12; M14

Suggested Citation

Li, Zhichuan Frank and Wang, Jun and Zhao, Yuqing, CSR Compensation Contract and CSR Ratings (March 2, 2021). Available at SSRN: https://ssrn.com/abstract=3796265 or http://dx.doi.org/10.2139/ssrn.3796265

Zhichuan Frank Li (Contact Author)

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

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

Jun Wang

University of Western Ontario - DAN Department of Management and Organizational Studies ( email )

Social Science Centre
London, Ontario N6A 5C2
Canada

Yuqing Zhao

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

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