CORPORATE SOCIAL RESPONSIBILITY INITIATIVES & DIRECTOR COMPENSATION STRUCTURE

This study examines the association between corporate social responsibility (CSR) and director compensation arrangements. I develop two competing hypotheses— based on the optimal contracting and rent extraction frameworks—arguing that CSR could shape director reputation or bargaining power, and consequently director pay structure. I further propose that monitoring or advising needs of the company as well as diversity of the board could moderate the proposed association. Finally, I argue that CSR-induced director compensation changes could have implications for firm performance. I document a positive and significant effect of CSR initiatives on director compensation. I also show that the effect is stronger for boards with greater advising but not monitoring needs. Boardroom gender diversity somewhat diminishes the effect of CSR. Finally, CSR-induced director compensation has mixed implications for firm performance. Overall, my results are more consistent with the rent extraction view of director pay arrangements.