Corporate social responsibility in compensation systems: empirical insights

Abstract

Research objectives

This report had three main objectives: (1) Explaining the rationale behind corporate social responsibility measurements from a HR point of view, (2) discussing the feasibility of linking CSR target setting to compensation systems and (3) investigating how CSR currently manifests itself through the monetary- and non-monetary elements of the compensation system.

Sources

The theoretical part derives insights from prior management and management accounting studies on corporate social responsibility, the compensation system, and the sustainability balanced scorecard framework, examining them through the lens of institutional theory. The empirical part relies chiefly on theme interviews with seven HR managers and one CEO in eight Finnish companies. Corporate sustainability reports were used as secondary sources of information.

Research methodology

A qualitative field study consisting of eight participant companies. The method used was semi-structured theme interviews with seven HR managers and one CEO. Because the subject matter is emergent, the methodology provides breadth through focusing on several case companies, but depth through focusing on HR managers specifically.

Results

CSR has been identified as a strategic activity, but inadequately defined on an internal level. The development of social indicators is in its initial steps and lagging behind environmental indicators. Managers expressed optimism towards linking CSR indicators to compensation, but emphasized that such targets need to be actionable. The study provided evidence of linking incentive compensation to CSR in three of the eight participant companies. In two cases, general CSR target setting was used as basis for monetary compensation, and in one case the incentive system was tied to a specific CSR-related indicator.