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A Stakeholder–Human Capital Perspective on the Link between Social Performance and Executive Compensation

Published online by Cambridge University Press:  23 January 2015

Peter M. Madsen  and
John B. Bingham
Peter M. Madsen
Affiliation:
Brigham Young University
John B. Bingham
Affiliation:
Brigham Young University
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Abstract:

The link between firm corporate social performance (CSP) and executive compensation could be driven by a sorting effect (a firm’s CSP is related to the initial levels of compensation of newly hired executives), or by an incentive effect (incumbent executives are rewarded for past firm CSP). Existing empirical work focuses exclusively on the incentive effect. In contrast, in this paper we explore the sorting effect of firm CSP on the initial compensation of newly hired executives. In doing so, we develop a novel theoretical approach based on an integration of stakeholder theory and human capital theory, suggesting a positive association between the initial compensation of executives and firm CSP strengths and concerns. It also suggests that the strength of this relationship varies between different executive roles (as a function of stakeholder-management responsibilities). We find support for this theoretical framework in a large sample of newly-hired executives employed by Standard & Poor 1500 firms.

Keywords

Corporate social performanceexecutive compensationstakeholder theoryhuman-capital theory
Type
Articles
Information
Business Ethics Quarterly , Volume 24 , Issue 1 , January 2014 , pp. 1 - 30
Copyright
Copyright © Society for Business Ethics 2014

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