Does being nice pay? The Relationship between Company CSR Performance and Executive Compensation in Sweden

Sammanfattning: The primary purpose of this paper is to investigate the relationship between CSR performance measures and the compensation levels of the CEO as well as of the average senior executive officer (SEO), while the secondary purpose is to investigate how traditional CEO compensation determinants relate to average SEO compensation. We apply a quantitative robust regression approach using a sample of 710 observations, covering 138 Swedish listed companies throughout 2005-2013. We contribute to executive compensation and CSR literature by finding that very weak and very strong company CSR performance is associated with lower levels of executive compensation for CEOs and SEOs. We identify a non-linear relationship between executive compensation and CSR scores, the effect of which in the CEO case is amplified by company profitability levels when Social CSR scores are low. Looking into the Social and Environmental components of CSR we conclude that Social CSR measures have a stronger connection to SEO compensation than Environmental measures, whereas in the CEO case both CSR component types are significant. We explore industry-level relationships and find potential CSR and executive compensation association differences between industries. Executive, governance and company specific variables generally follow the findings of former research, although board size, institutional ownership and company profitability are not significantly related to average SEO compensation, while both CEO and SEO compensation is associated negatively to presence of blockholders and positively to blockholders' control and ownership detachment. Our findings mainly have practical implications for further research, emphasizing the need for separate investigations in CEO and SEO areas, avoiding generalized (non-industry level) research as well as calling some past executive and CSR research results into question. Potential business implications include CSR effects on executive recruitment decisions and on company strategy decisions due to the effect on executive salaries.