Title: Restrictions on executive compensation will decrease corporate social responsibility? Evidence from the executive compensation regulations in China
Abstract: The issue of corporate social responsibility (CSR) has garnered increasing attention from various sectors of society. However, excessively high executive compensation within enterprises may hinder the fulfillment of CSR. To address this issue, adjustments to compensation policies are necessary. As an essential aspect of compensation policies, pay regulation has also attracted growing interest from scholars. However, the influence of pay regulation on corporate decision-making, particularly its implications for corporate social responsibility, remains uncertain and requires further exploration. In this paper, we attempt to assess the impact of executive compensation regulation on corporate social performance and the influencing mechanism behind it. Using a sample of non-financial A-share listed companies in China from 2010 to 2020 and leveraging the 2015 “pay ceiling order” issued by the Chinese central state-owned enterprise as a quasi-natural experiment, this study applies the difference-in-differences (DID) method to examine the impact of the policy. The findings reveal that the implementation of the “pay ceiling order” policy substantially promotes the enhancement of CSR levels among enterprises. In the mechanism analysis, we find that the internal salary gap, an important indicator of employee well-being within enterprises, plays a significant mediating role in this effect. Additionally, the level of internal control within a company determines the effectiveness of management implementation. This variable can regulate both the direct and indirect impacts of pay regulation on corporate social responsibility. Further research indicates that in companies with either low management compensation levels or high management power, the positive effects of pay regulation on corporate social responsibility are more pronounced. Additionally, the policy of pay regulation has different “corporate social responsibility effects” on various stakeholders. These findings enrich the literature on the factors influencing corporate social responsibility and offer valuable insights for the design of corporate compensation policies and the advancement of social responsibility initiatives.
Keywords:Executive compensation ; Corporate social responsibility ;Corporate governance ; Difference-in-Differences
DOI:https://doi.org/10.1007/s10668-025-07116-0
