Doing good or doing great? Investigating the effects of corporate social responsibility on firm financial performance and employee compensation

Purpose Previous corporate social responsibility (CSR) research often finds conflicting results regarding firm outcomes. This study aims to examine a firm’s relative amount of CSR compared to both peer firms and high CSR firms as one source of those inconsistent findings. Design/methodology/approach This study creates a data set of financial and compensation variables using the Newsweek America’s Most Responsible Companies list (with accompanying ESG scores) and a matched set of firms not recognized for their CSR efforts. Comparisons are made on various firm outcomes between CSR-recognized firms and firms not recognized for their CSR efforts, as well as within recognized firms (using the Newsweek ESG score). Findings Results indicate that while financial performance is higher both for recognized CSR firms (in comparison to non-recognized peers) and for firms with higher ESG scores within recognized CSR firms, compensation results differ. Specifically, CSR recognized firms have higher median employee pay and a lower CEO pay ratio than do non-recognized firms. However, among CSR-recognized firms, higher ESG scores are associated with increased CEO compensation, no relationship to median employee pay and an increased CEO pay ratio. Originality/value The results offer an intriguing explanation for previous mixed results on CSR’s impact on firm outcomes and invite consideration as to whether continued investment in CSR actions once a firm has been recognized for its CSR leads to outcomes in line with the philosophy of CSR.