Relative Social Performance Evaluation and Executive Compensation
I examine the association between chief executive officer (CEO) compensation and corporate social performance (CSR) by considering relative performance evaluation (RPE) as a monitoring tool adopted by corporate boards.Since the MSCI database measures CSR differently over time, I construct time consistent measures of social performance to overcome this issue. After testing the hypotheses,I argue that the MSCI database is not suitable to establishtime consistent performance measures of CSR.Subsequently,Itestedthe hypotheses foreachyear separatelyin the sample. Based on the results, I suppose the association between compensation andCSR has becomeincreasingly important over time.Byscrutinizing the most recent yearin the sample, I found social performanceto be positively related to CEO compensation.Moreover, I found the mechanism of RPE on social performance to be positivelyassociated with executive remunerationforthe most recent year in the sample. Besides,I found this association to be stronger for firms characterized by strong corporate boards.