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Journal of Business Ethics

, Volume 157, Issue 2, pp 375–390 | Cite as

Do Contracts Make Them Care? The Impact of CEO Compensation Design on Corporate Social Performance

  • Jean McGuireEmail author
  • Jana Oehmichen
  • Michael Wolff
  • Roman Hilgers
Original Paper

Abstract

Using the behavioral agency model, we analyze how two compensation design characteristics, pay-performance sensitivity and duration of CEO compensation (taking into account multiple vesting periods), affect corporate social performance. We find that the performance sensitivity of CEO pay is negatively associated with poor social performance but also negatively affects strong social performance. These results suggest that pay-performance sensitivity increases the relevance of potential negative consequences of poor social performance. However, the ‘insurance’ benefits of strong social performance may also become less relevant. With respect to the duration of CEO compensation, we find that it reduces poor social performance. This finding confirms arguments that a long-term compensation time horizon increases the perceived threat that the negative effects of poor social performance will become visible. With our findings, we integrate behavioral agency theory with the traditional stakeholder views.

Keywords

Corporate social performance CEO compensation Pay duration Pay-performance sensitivity Behavioral agency 

Notes

Acknowledgements

We thank Michael Holmes who provided valuable comments on an earlier draft of this manuscript. We thank the editor and reviewers for their excellent suggestions.

Compliance with Ethical Standards

Human and Animal Rights

This article does not contain any studies with human participants or animals performed by any of the authors.

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Copyright information

© Springer Science+Business Media B.V. 2017

Authors and Affiliations

  • Jean McGuire
    • 1
    Email author
  • Jana Oehmichen
    • 2
  • Michael Wolff
    • 2
  • Roman Hilgers
    • 2
  1. 1.Rucks Department of ManagementLouisiana State UniversityBaton RougeUSA
  2. 2.Chair of Management and ControlGeorg-August University GöttingenGōttingenGermany

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