With the increasing emphasis on environmental
protection in the global economy, CEOs are under immense pressure from their
stakeholders to improve corporate social responsibility (CSR). However, prior
studies have contradictory conclusions about the relationship between CSR and
financial performance (FP). We thus extend prior research by investigating
whether CEO compensation moderates the CSR-FP link. This study uses US firm
data from the KLD database for the period 2003-2011. The results of the
empirical analysis indicate that CEO compensation with a long-run focus can
positively moderate the link between the people aspect of CSR and long-run FP.
This is thus consistent with signaling theory, which states that CEO
compensation with a long-run focus increases the incentive to hire women and
minorities, and enhances the good treatment of employees. As a result, firms
engaging more in the people aspect of CSR activities tend to have greater
overall long-run profitability.