The Effects of Corporate Social Responsibility on Executive Compensation-Performance Sensitivity: A Study Based on Chinese Companies

Purpose: This paper analyzes whether corporate social responsibility (CSR) affects executive compensation-performance sensitivity. Furthermore, it analyzes whether there are differences in the effect of CSR on executive compensationperformance sensitivity between state-owned (SOEs) and non-state-owned enterprises (NSOEs), based on the ownership structure of Chinese companies. This provides a foundation for the implementation of performance evaluation systems tailored to ownership types in enterprises. Research design, data, and methodology: This paper uses data from 9,984 manufacturing companies listed on the China Securities Exchange from 2015 to 2020 for empirical analysis. The ownership structures of Chinese enterprises are categorized into state-owned and non-state-owned, while executive compensation is defined as the total compensation of executives based on previous studies. CSR is measured by reference to the Hexun Corporate Social Responsibility Rating System, using the total CSR score. And enterprise performance is measured by return on assets (ROA). Results: Firstly, there is a significant positive correlation between CSR and the sensitivity of executive compensation-accounting performance. The results support the principal-agent theory, indicating that executives may use the fulfillment of CSR as a pretext to leverage their power in increasing personal compensation and subsequently enhancing the sensitivity of executive compensation-performance. Secondly, in comparison to NSOEs, the fulfillment of CSR by executives in SOEs is significantly negative correlation with the sensitivity of executive compensation-accounting performance at the 1% level. Implications: In analyzing the relationship between CSR and the executive compensation-performance sensitivity for Chinese A-share listed companies, this p aper i s unique in that i t analyzes t he d if efrential e f efcts o f CSR fulfillment by executives in SOEs and NSOEs. It suggests that the effect of CSR on executive compensation-performance sensitivity varies based on the ownership structure. These differences may hold practical significance for executive compensation and CSR decision-making.