The Advisors' Blog

– Broc Romanek

Here’s the intro from this blog by Cooley’s Cydney Posner:

In this recent academic study, “Social Responsibility Criteria in Executive Compensation: Effectiveness and Implications for Firm Outcomes,” the authors examined the impact of the integration of elements of corporate social responsibility, such as environmental and social performance, into executive compensation performance criteria. In the decision-making process, executives tend to gravitate toward the achievement of short-term goals and to respond more readily to more prominent direct stakeholders, such as customers and shareholders.

But CSR metrics typically have a long-term pay-off and involve less direct stakeholders, such as the environment and the local community. The question is: is the inclusion of CSR performance metrics in executive comp programs effective to motivate executives to achieve those longer-term CSR goals, engage with CSR stakeholders and enhance long-term value creation?