CEO compensation and CSR: Economic implications and policy recommendations

The theoretical underpinning of compensation for CSR in the SDG era emerges as a trending area for researchers. However, the measurability of CSR is a technical problem for CSR research in developing nations. This study uses 5,699 firm-year observations and entropy measures to assign CSR engagement scores based on CSR breadth and depth. The results reveal that total compensation (TC) behaves according to stewardship theory and positively influences CSR engagement, breadth, and depth. However, fixed (FC) and variable (VC) compensations follow agency theory and have a negative and positive impact on CSR engagement, breadth, and depth, respectively. We also examine the impact of TC, FC, and VC on CSR engagement levels in firms' external and internal control. We observe that high-leverage firms hold the baseline result, whereas, in internal control, the non-business group firms hold the baseline result. Moreover, in institutional ownership, we find that TC and VC follow the stewardship and agency theories and positively affect CSR engagement. In contrast, the impact of FC on CSR engagement is not affected by institutional ownership. The findings of this study can help policymakers improve CEO compensation structures to increase CSR practices and ensure the achievement of SDGs by 2030.& COPY; 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.

Automated summary

The study finds that total compensation typically follows stewardship theory and positively impacts CSR engagement, breadth, and depth; while fixed and variable compensations adhere to agency theory and have negative and positive impacts on CSR engagement, breadth, and depth, respectively. The research also reveals that high-leverage firms demonstrate baseline results in external control, while non-business group firms exhibit baseline results in internal control. Moreover, in terms of institutional ownership, total compensation and variable compensation follow stewardship and agency theories, respectively, and positively affect CSR engagement, while fixed compensation is unaffected by institutional ownership in influencing CSR engagement.