Does tying executive pay to environmental and social targets actually change how a company behaves? Flammer, Hong and Minor built the first longitudinal database of the practice, they call it “CSR contracting,” from S&P 500 proxy statements filed between 2004 and 2013, a decade in which adoption climbed from 12% to 37% of the index. Firms that adopted it showed measurably greater long-term orientation, higher firm value, lower emissions and more green patents, with stronger effects where the CSR-linked share of pay was larger. The mechanism the authors identify is attentional: these contracts pull management toward stakeholders who are easy to overlook but financially material over the long run.
* Caroline Flammer, Bryan Hong and Dylan Minor. “Corporate governance and the rise of integrating corporate social responsibility criteria in executive compensation: Effectiveness and implications for firm outcomes.” Strategic Management Journal, Vol. 40, 2019, pp. 1097–1122.
