Corporate Social Responsibility and Long-term Compensation: Evidence from Canada

Journal of Business Ethics · 2005 · Volume 57 · Issue 3

Abstract

This paper examines the association between long-term compensation and corporate social responsibility (CSR) for 90 publicly traded Canadian firms. Social responsibility is considered to include concerns for social factors and the environment (e.g. Johnson, R. and D. Greening: 1999,Academy of Management Journal42(5), 564-578; Kane, E. J. (2002,Journal of Banking and Finance26:, 1919-1933; McGuire, J. et al. 2003,Journal of Business Ethics45 (4), 341-359). Long-term compensation attempts to focus executives’ efforts on optimizing the longer term, which should direct their attention to factors traditionally associated with socially responsible executives (Mahapatra, S. 1984,Journal of Financial Economicsit20, 347-376). As hypothesized, we found a significant relationship between the long-term compensation and total CSR weakness as well as the product/environmental weakness dimension of CSR. In addition, we found a marginally significant relationship between long-term compensation and total corporate responsibility. Our findings are that executives’ long-term compensation is associated with a firm’s environmental actions, and that firms that utilize long-term compensation are more likely to mitigate product/environment weaknesses than those that do not. Implications for practice and research are discussed.

Keywords

corporate governance, executive compensation, social performance, social responsibility

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