CEO Pay-Performance Sensitivity and Corporate Social Responsibility

We examine the impact of CEO pay-performance sensitivity on corporate social responsibility (CSR). Using a sample of 1,416 firms and 11,726 firm-year observations from 2000 to 2018, we find that CEO pay-performance sensitivity does not have any significant impact on firms’ overall CSR scores. However, after splitting the overall CSR into two subcategories, we find CEOs who are more aligned with shareholders via their compensation packages mitigate firms' exposure to environmental and social risks and hazards, and at the same time, they reduce firms' involvement in activities that intend to enhance CSR greenness. These findings suggest that CSR activities are not equivalent, and CEOs balance the costs and the benefits of the two types of CSR activities separately when their interests are aligned with those of shareholders. Our additional analysis confirms the robustness of the main findings.