CSR Metrics and compensation peer groups: Separating selection from influence

This study examines the determinants for the integration of CSR related targets in executive compensation. The integration of Corporate Social Responsibility (CSR) metrics in incentive-based pay components is a recent development observed in executives’ compensation. Evidence suggests that these incentives positively affect companies’ CSR related activities, and firm value in total. However, there is no evidence on the underlying drivers. We refer to compensation peer groups, and examine how CSR-orientation of firms is the result of a) selection of compensation peers, and b) influence by the CSR orientation of competitors. Our results show that companies that already integrate CSR metrics select compensation peers which are similar in their CSR profiles, and that the dominant effect for integration is influence, implying that companies’ decision to integrate CSR is primarily the influential effect of competitors.