We investigate the determinants of ‘CSR contracts’, compensation contracts that tie a portion of executive pay to CSR engagements.

We find that CSR contracts are primarily granted by large firms with a history of being socially responsible, particularly in industries where employee safety and environmental protection concerns are likely to be important.

We also find some evidence that CSR contracts are offered by well-governed firms to align the interests of executives with those of shareholders.

Interestingly we find that, compared to Transparent CSR contracts that clearly define the relationship between executive pay and CSR-related milestones, Opaque CSR contracts correlate more strongly with measures of good governance and firm value.

By: Atif Ikram, Arizona State University (ASU) – W.P. Carey School of Business, Zhichuan Frank Li, University of Western Ontario – Ivey School of Business, and Dylan Minor, Northwestern University – Kellogg School of Management

You can find the SSRN paper here