Integration of CSR Criteria Into Executive Compensation Contracts: A Cross-Country Analysis

This study examines the relationship between the degree of external social and environmental regula-tory pressures and firms’ integration of corporate social responsibility (CSR) criteria into executive compensation contracts. Building on the notion that firms operate in settings in which external regu-latory pressures and internal corporate governance conditions interact, we investigate how internal corporate governance mechanisms moderate the relationship between external regulatory pressures and adoption of CSR criteria in executive compensation contracts. The analysis of a worldwide, lon-gitudinal sample of 2,328 firms listed in 37 countries during 2003 through 2015 reveals that the degree of regulatory pressure on firms to operate in socially and environmentally sound ways positively influ-ences their adoption of CSR criteria in executive compensation contracts (i.e., conformity effect). Regulatory pressures evoke heterogeneous responses among firms within a country though, depending on their interaction in the corporate governance bundle. Corporate governance mechanisms have moderating effects: a greater degree of board independence strengthens the conformity effect, whereas blockholder ownership weakens it. This study advances understanding of how the corporate governance bundle of external regulatory pressures and internal corporate governance mechanisms affects the adoption of a relatively recent, important corporate governance practice in the boardroom.