Executive Compensation in Socially Responsible Firms

Abstract

This study examines chief executive officer (CEO) compensation and turnover in socially responsible (SR) firms. We compare characteristics of SR firms with a matched sample of firms based on industry and size. Analysis of CEO compensation indicates that the link between CEO pay and firm performance is weaker for SR firms than for non‐SR firms. CEO turnover tests indicate that SR firms are more likely to experience CEO turnover following poor performance. Stock option grants to CEOs of SR firms do not appear to result in future risk‐taking behaviour, whereas such grants are significantly related to future risk at non‐SR firms.