The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1935-5181.htm
AJB
30,3
196
Received 15 October 2014
Revised 24 March 2015
16 September 2015
30 October 2015
Accepted 5 November 2015
American Journal of Business
Vol. 30 No. 3, 2015
pp. 196-215
© Emerald Group Publishing Limited
1935-5181
DOI 10.1108/AJB-10-2014-0057
Monetary compensation,
workforce-oriented
corporate social responsibility,
and firm performance
Mingming Feng
Department of Accountancy,
Haworth College of Business, Western Michigan University,
Kalamazoo, Michigan, USA
Xiaodan “Abby” Wang
Department of Management,
Haworth College of Business, Western Michigan University,
Kalamazoo, Michigan, USA, and
Jagjit S. Saini
Department of Accountancy,
Haworth College of Business, Western Michigan University,
Kalamazoo, Michigan, USA
Abstract
Purpose – Prior literature has established the theoretical and statistical linkages between
monetary compensation and firm performance, yet little is known about how the association
between monetary compensation and firm performance is moderated by companies’ engagement in
corporate social responsibility (CSR) activities. Further, compared to executive compensation,
non-executive compensation remains an underexplored topic. The purpose of this paper is to
investigate how workforce-oriented CSR moderates: first, the association between non-executive
compensation and firm performance; and second, the association between executive compensation and
firm performance.
Design/methodology/approach – Using a sample of 181 from the largest 3,000 US companies for
the years 1991-2011, the authors investigate how workforce-oriented CSR moderates the association
between compensation and firm performance. Compensation is examined at two levels – non-executive
versus executive compensation. The workforce-oriented CSR score is constructed as total strengths
minus total concerns in Kinder, Lydenberg, and Domini’s employee relations dimension.
Findings – The authors find an improvement in firm performance with increases in both
non-executive and executive compensation. Further, workforce-oriented CSR positively moderates the
association between non-executive compensation and firm performance, and negatively moderates
the association between executive compensation and firm performance.
Research limitations/implications – This study adds to the literature of the compensation-
performance linkage by including both non-executive and executive compensation as important
determinants of firm performance and incorporating workforce-oriented CSR as a moderator on the
compensation-performance linkage. It also provides new angles for CSR scholars.
Practical implications – This study helps managers understand the importance of
fulfilling employees’ social emotional needs and the potential of workforce-oriented CSR in
shaping employees’ perceived distributive justice. The findings also help managers make critical
decisions regarding the allocation of limited corporate resources and prioritization of investment
options. In addition, the findings are also useful to boards of directors and human resources
managers who are in charge of hiring executives, building top management teams, and deciding
executive compensation.
Originality/value – This study helps advance our understanding of the compensation-performance Monetary
linkage. The results suggest that the relationship between compensation and financial performance is
contingent on other organizational factors. In addition, the findings provide practical implications on
compensation
how CSR engagement moderates the association between non-executive compensation and firm
performance differently than the association between executive compensation and firm performance
and how to allocate corporate resources and prioritize strategic options effectively.
Keywords Firm performance, Executive compensation, Non-executive compensation,
Workforce-oriented corporate social responsibility 197
Paper type Research paper

Introduction
This study intends to explore if and how a firm’s engagement in corporate social
responsibility (hereafter CSR) influences the relationship between monetary
compensation and firm financial performance. Both monetary compensation and CSR
are important business topics that have attracted substantial research attention. Prior
literature has established the theoretical and empirical linkages between monetary
compensation and firm performance. Monetary compensation serves as a motivational
incentive and has been found to be positively associated with firm performance (Larkin
et al., 2012). The relationship between CSR and firm performance has also been studied in
the mainstream literature on organizational behavior (Bauman and Skitka, 2012),
strategic management (Siegel and Vitaliano, 2007), and sustainability (Aguinis and
Glavas, 2012; Devinney, 2009). In light of the positive performance implications of CSR,
more and more firms, big or small, are increasing their engagement in CSR. Despite the
intensive research and attention that has been devoted to the topics of monetary
compensation and CSR, little is known about how the linkage between compensation and
firm performance is affected by CSR engagement. In addition, the strategy literature on
compensation has focussed primarily on executive compensation, yet non-executive
compensation remains an underexplored topic. To fill these gaps in the literature,
this study examines how CSR engagement influences: first, the relationship between
non-executive compensation and firm performance; and second, the relationship between
executive compensation and firm performance.
We use the definition of CSR as offered by Aguinis (2011, p. 855) – “context-specific
organizational actions and policies that take into account stakeholders’ expectations
and the triple bottom line of economic, social, and environmental performance.” Unlike
other corporate expenditures intended primarily to benefit shareholders, the CSR
expenditure affects both shareholders and stakeholders, including employees,
managers, investors, consumers, and regulators.
CSR activities can be classified into four categories – workforce-oriented CSR,
market-oriented CSR, society-oriented CSR, and environment-oriented CSR (Mandl and
Dorr, 2007; European Commission, 2003). In this study, we focus on workforce-oriented
CSR because it is the only one among the four categories of CSR that targets directly on
employees and has important bearings on employee motivation. Following prior
studies (Mandl and Dorr, 2007; European Commission, 2003), we define workforce-
oriented CSR activities as the CSR practices dealing with workplace health and safety,
flexible working hours, better working conditions, training and development,
workplace diversity, work and life balance, etc. Workforce-oriented CSR activities
benefit both non-executive employees and executives. However, given the differences in
vision, mindset and primary need between non-executive employees and executives,
a firm’s engagement in workforce-oriented CSR may either enhance or mitigate the
AJB effect of compensation on firm performance in these two groups. Accordingly,
30,3 we investigate the following two research questions:
RQ1. How does workforce-oriented CSR moderate the relationship between
non-executive compensation and firm performance?
RQ2. How does workforce-oriented CSR moderate the relationship between
198 executive compensation and firm performance?
Using the data of 181 from the largest 3,000 US companies for the years 1991-2011, we
find an improvement in firm performance with increases in both non-executive
compensation and executive compensation. More importantly, we find that workforce-
oriented CSR positively moderates the association between non-executive
compensation and firm performance, indicating that the positive relationship
between non-executive compensation and firm performance is strengthened when
the level of workforce-oriented CSR engagement is higher. Greater workforce-oriented
CSR investment would enhance the effect of non-executive compensation on firm
performance. In contrast, our empirical results show that workforce-oriented CSR
negatively moderates the association between executive compensation and firm
performance, indicating that the positive relationship between executive compensation
and firm performance is mitigated when the level of workforce-oriented CSR
engagement is higher. In other words, greater workforce-oriented CSR investment
would weaken the effect of executive compensation on firm performance.
This study makes several important theoretical and practical contributions. First,
this study advances our understanding of the compensation-performance relationship
by including both non-executive compensation and executive compensation as
important determinants of firm performance. Extant strategy literature on
compensation has primarily focussed on executive compensation and its implication
on firm performance but paid little attention to non-executive compensation. We fill this
gap in the literature. Second, this study extends the CSR literature by incorporating
workforce-oriented CSR as a moderator on the relationship between compensation and
firm performance. While researchers have examined the linear association between
CSR and executive compensation (Miles and Miles, 2013; McGuire et al., 2003), if and
how CSR influences the relationship between compensation and firm performance
remains an open question. We fill this gap by exploring the moderating effect of CSR on
the impacts of non-executive compensation and executive compensation on firm
financial performance. Third, facing the increasing demands by investors, suppliers,
customers, employees, and regulators for CSR, managers need to figure out how to
allocate limited corporate resources strategically and effectively so as to satisfy both
shareholders and stakeholders (Morgeson et al., 2013). Our study provides important
performance implications for resource allocation between non-executive compensation
and executive compensation for firms that are currently engaging in CSR or planning
to do so in the future. Finally, this study adds value to classroom discussions in
strategic management and human resource curricula.

Theoretical background
Monetary compensation and firm performance
Compensation is an integral part of organizational management. The relationship between
a firm’s compensation strategies and its financial performance is of significance to
researchers and practitioners. Monetary compensation improves firm performance by
attracting and retaining capable employees and motivating employees (Larkin et al., 2012). Monetary
Firms are willing to pay employees a premium to compensate employment uncertainty compensation
because employees tend to be risk averse (Larkin et al., 2012). Drawing on agency theory
( Jensen, 1986), prior studies on compensation strategy also suggested that compensation
policies should be strategic in order to maximize a firm’s profit[1]. From the behavioral
perspective, compensations are examined in determining their effectiveness on
incentivizing employees and improving their performance. Psychologist B.F. Skinner 199
(1953) popularized the theory of positive reinforcement and documented that bonuses are
considered as an incentive to encourage positive and efficient behaviors among employees.
The connection between compensation and performance suggests that compensation
motivates employees to be more productive and go extra miles (Timpe, 1986). Igalens and
Roussel (1999) also studied the relationships among compensation package, work
motivation, and job satisfaction. Unsurprisingly, employees who are paid more are more
satisfied with their jobs and are less inclined to leave their employers.
Executives generally earn higher wages than non-executive employees. The US
Bureau of Labor Statistics (2014a, b) reported that the 2012 median annual salary of a
basic executive employee was $81,080. As of May 2013, payroll and timekeeping
clerks earned median annual salaries of $39,850 and office clerks earned $29,990.
However, the compensation for top managers accounts for only a small portion of a
firm’s overall compensation costs (Whittlesey, 2006). Non-executive employees, who
represent a large portion of all employees, in the aggregate, make significant
contribution toward the success of a firm. Therefore, the compensation strategy of
non-executive employees also plays an important role in affecting firm performance
(Rolfe, 2007).

Workforce-oriented CSR and firm performance

Stakeholder theory (Freeman, 1984) explains how a firm’s commitment to CSR
contributes to its financial health through improvement of the relationship with various
stakeholders. From this perspective, several studies argued that the motivation of CSR
engagement is to improve firm performance through a positive influence on
stakeholders, such as employees, customers, and investors (Artiach et al., 2010; Martin
et al., 2009; Verschoor, 2005; Fombrun and Shanley, 1990).
Focussing on the employee stakeholders and workplace issues, some studies
documented the positive impacts of CSR on attracting capable employees (Grow et al.,
2005), boosting employee morale and commitment within a firm (Godfrey, 2005;
McGuire et al., 1990), and staff retention (Eweje, 2006). The extant empirical studies also
provided evidence that CSR does influence current and prospective employees’
attitudes about their employers as well as their behaviors in the workplace. Bauman
and Skitka (2012) identified four specific ways through which CSR can influence
employees’ relationships within their company: first, reassure the sense of safety and
security; second, provide positive distinctiveness and enhance social identity; third,
symbolize commitment to important values and engender a sense of belonging; and
fourth, provide a greater sense of purpose at work. Further, research found that CSR
practices that satisfy a sense of belonging and promote a feeling of fit are positively
associated with employees’ organizational citizenship behavior and in-role performance
(Organ et al., 2006; Ashforth and Mael, 1989). Similarly, Aguilera et al. (2007) discussed
the importance of CSR in the employee domain and argued that treating employees
fairly and providing them with a good working environment enhance employee
satisfaction and productivity.
AJB According to the European Commission (2003) and Mandl and Dorr (2007),
30,3 CSR activities can be classified into four categories – workforce-oriented CSR,
society-oriented CSR, market-oriented CSR, and environment-oriented CSR. In this
study, we focus on the workforce-oriented CSR since it is directly related to the two
internal stakeholder groups – non-executive employees and executives. Two examples
of workforce-oriented CSR are presented in Appendix 1.
200 Workforce-oriented CSR activities generally target current and potential employees
and aim to improve the employment relationship. Budd and Bhave (2010) define “the
employment relationship” as a mutually advantageous, long-term partnership of
employees and employers with common interests. The nature of the employment
relationship is critical to the success of a firm. Research in the area of organizational
behavior has found a positive association between the employment relationship and
firm performance. For example, Wang et al. (2003) found that the mutual investment
employment relationship is critical for firm performance[2]. Similarly, Tsui et al. (1997)
found that the mutual investment employment relationship results in positive change
in employee attitude and firm performance.

Hypotheses development
The moderating effect of workforce-oriented CSR on the association between
non-executive compensation and firm performance
Non-executive employees are primary stakeholders of a firm. Many great ideas about
enhancing corporate growth and performance come from the non-executive employees,
who fight the company’s battles on daily basis, serve customers, and explore new
markets (Spender and Strong, 2010). It is the non-executive employees who collectively
realize firm goals, implement firm strategies and make direct contribution to their
firm’s success. Given the importance of human capital in creating competitive
advantages (Wright et al., 2001; Wright et al., 1994), how to attract, develop and retain
talented employees has received substantial research attention (Koch and McGrath,
1996). The compensation literature has established a positive relationship between
monetary incentives and firm performance ( Jenkins et al., 1998).
However, few non-executive employees are motivated solely by money. A good
working environment, friendly colleague relationships, and balance between work and
family are also important considerations when one decides to apply for, join, remain
with or leave a company. Targeting at current and potential employees, workforce-
oriented CSR practices tend to improve the employment relationship through activities
such as improvement of working conditions (including health and safety conditions at
work) and job satisfaction, pursuit of balance between work and life, promotion of
equal opportunities and diversity, career planning and development, communication
and information sharing with employees, and employees’ involvement in corporate
decisions (Mandl and Dorr, 2007). These practices are all effective motivators to
promote non-executive employees’ commitment and productivity, and encourage them
to put forth more effort toward the overall organizational goal of profit maximization.
We argue that workforce-oriented CSR practices positively moderate the impact of
non-executive compensation on firm performance for two reasons. First, while
compensation primarily fulfils non-executive employees’ physical needs of buying food
and shelter, workforce-oriented CSR practices focus on non-executive employees’
social and emotional needs. Working for a socially responsible company brings more
meaning to employees than making a living. When employees feel that their employers
are not merely treating them as a means of making profit but are sincerely caring about
their well-being, they are likely to work harder in response to greater compensation. Monetary
In other words, the effect of compensation on promoting firm performance is likely to compensation
be strengthened when firms treat their employees in a more socially responsible way.
Second, we argue that workforce-oriented CSR practices positively moderate the
impact of non-executive compensation on firm performance through employees’
perceived fairness of the compensation they receive. When a company behaves in a
more socially responsible way through greater investment in workforce-oriented 201
CSR practices, employees are likely to perceive higher levels of organizational justice
(e.g. procedural justice and distributive justice). Employees will have more
confidence on the systems or procedures used to allocate the outcomes and on the
fairness of the outcome distribution among organizational members (McFarlin and
Sweeney, 1992). As such, employees’ behavioral reactions to monetary compensation
will be more favorable in firms engaging in higher levels of workforce-oriented CSR,
resulting in better firm performance. That is to say, the perceived fairness in
how non-executive employees are rewarded for their behavior and performance will
increase the effectiveness of compensation as a motivator in promoting
firm performance. Therefore, we expect that the positive association between
non-executive compensation and firm performance is strengthened when the level of
workforce-oriented CSR engagement is higher. Our first hypothesis is formulated as
follows:
H1. The effect of non-executive compensation on firm performance is stronger in
firms with higher levels of engagement in workforce-oriented CSR.
The moderating effect of workforce-oriented CSR on the association between executive
compensation and firm performance
While the contribution of non-executive employees to firm performance is significant,
executives also apply their professional expertise to play critical roles in setting
direction, developing strategy and running the business and are, therefore, rewarded
more for their contribution than non-executive employees. Miles and Miles (2013)
reported that executive managers of Fortune 1,000 companies across more than
15 industries were significantly rewarded for their work, with the average level of
compensation nearing $8 million. Being such a significant corporate expenditure,
executive compensation has received considerable research attention and has been well
studied in the management literature (Miles et al., 2007). By and large, executive
compensation represents the market value of human capital and managerial carried by
executives (Peng et al., 2015). According to the resource based view of strategic
management, firms having better human capital are more likely to create competitive
advantage and general above-average performance (Sirmon and Hitt, 2009).
Non-executive employees and executives have different interests and concerns.
Other than monetary compensation, executives’ needs for achievement, control
power, accomplishment, career development, and recognition set them apart from
non-executive employees. For example, McClelland (1958) found that high-achieving
managers do not necessarily crave material rewards and differentiate themselves
from non-managers by their desire for personal achievement. Executives also have
the need to exercise control over their subordinates and for resources to achieve
challenging goals (Singh and Sinha, 2013). In addition, executives in firms with good
corporate social performance might be willing to accept lower financial
compensation for the rewards of being considered good corporate citizens (Miles
and Miles, 2013).
AJB We argue that workforce-oriented CSR practices negatively moderate the impact of
30,3 executive compensation on firm performance for two reasons. First, workforce-oriented
CSR is likely to reduce the marginal motivational effect of executive compensation on
firm performance. Higher levels of workforce-oriented CSR increase executives’
satisfaction with their employers from the pride of working for a socially responsible
firm more than that from the compensation per se. Such reputational and/or emotional
202 rewards may weaken the motivational effect of monetary compensation on firm
performance, especially when the executive compensation is already at a high level.
At such a high level of compensation, the motivation generated by additional pay tends
to be marginal.
Second, both executive compensation and CSR practices represent major parts of
corporate costs. High levels of workforce-oriented CSR consume substantial
firm resources. Given the resource scarcity, when a firm devotes considerable financial
resources and managerial attention to workforce-oriented CSR practices, resources
subjected to executives’ discretion for other value-creating activities decrease, which may
influence the effectiveness of strategy execution (Margolis and Walsh, 2003; McWilliams
and Siegel, 2001). Without effective execution, highly-paid, talented executives cannot
realize their strategic goals successfully. Therefore, we expect that workforce-oriented
CSR negatively moderates the association between executive compensation and firm
performance. That is, the positive association between executive compensation and firm
performance is mitigated when the level of workforce-oriented CSR engagement is
higher. Our second hypothesis is formulated as follows:
H2. The effect of executive compensation on firm performance is weaker in firms
with higher levels of engagement in workforce-oriented CSR.

Methodology
Variable measurement
Compensation is examined at two levels – non-executive versus executive compensation.
Non-executive compensation (NonExecuComp) is measured as staff compensation
expense (variable XLR) divided by the number of staff. Staff compensation expense
data are collected from Compustat. Executive compensation (ExecuComp) is measured as
total salary of executive managers divided by the number of executive managers.
Executive compensation data are collected from ExecuComp since 1991.
Kinder, Lydenberg, and Domini (KLD) Research and Analytics, Inc. rates CSR for
the largest 3,000 US companies by market capitalization on six primary dimensions –
corporate governance, community relations, diversity, employee relations, environment,
and product. This database has been employed in a large number of prior studies, such
as Servaes and Tamayo (2013), Hillman and Keim (2001), Berman et al. (1999), Johnson
and Greening (1999), and Waddock and Graves (1997). Since our focus is on workforce-
oriented CSR, the workforce-oriented CSR score (WorkforceCSR) is constructed as total
strengths minus total concerns in the employee relations dimension[3].
Following prior literature, we use Tobin’s Q to proxy for firm financial performance
(Palia, 2001). Tobin’s Q is defined as the market value of equity plus the book value of
assets minus the sum of book value of common equity and deferred taxes, all deflated
by the book value of assets.
We control for five firm characteristics that have been found to be associated with
firm performance. Larger firms tend to have greater financial performance (Roberts
and Dowling, 2002). Firm size (Size) is measured as the natural logarithm of total assets.
Firm growth (Growth) is controlled and calculated as the increase in this year sales Monetary
from prior year sales divided by prior year sales. Firm age is controlled since older compensation
firms tend to have higher levels of inertia, which may decrease firm performance
(Hannan and Freeman, 1984). Firm age (Age) is measured as the total number of years
that the firm has been filing with the SEC. Risk has been found to be associated with
firm performance (Waddock and Graves, 1997). Firm risk (Risk) is measured as the
long-term liabilities divided by total assets (Bhandari, 1988). Using two-digit SIC codes, 203
we include Herfindahl-Hirschman Index (HH_Index) to proxy for the level of market
competition (Flammer, 2015). HH_Index is calculated by summing the squares of the
percentage market shares held by the respective firms. Industry (Industry) and year
dummies (Year) are also included to control for the industry and year fixed effects.
A detailed description of variables is included in Appendix 2.

Model specification
To investigate how a firm’s engagement in CSR influences the relationship between
non-executive (executive) compensation and firm performance, we estimate the
following Model 1 (Model 2):

Tobin’s Q ¼ a1 N onExecuComp þ a2 W orkf orceCSR þ a3 N onExecuComp

 W orkf orceCSR þ Controls þ e (1)

Tobin’s Q ¼ b1 ExecuComp þ b2 W orkf orceCSR þ b3 ExecuComp

 W orkf orceCSR þ Controls þ m (2)

Our primary variables of interest are the interaction term of non-executive compensation
and workforce-oriented CSR (NonExecuComp × WorkforceCSR) and that of executive
compensation and workforce-oriented CSR (ExecuComp × WorkforceCSR). As discussed
in H1, we expect a positive coefficient on NonExecuComp × WorkforceCSR, α3,
suggesting that workforce-oriented CSR positively moderates the association between
non-executive compensation and firm performance, and would thus enhance the
motivational effect of non-executive compensation on firm performance. As discussed in
H2, we expect a negative coefficient on ExecuComp × WorkforceCSR, β3, suggesting that
workforce-oriented CSR negatively moderates the association between executive
compensation and firm performance, and would thus weaken the motivational effect of
executive compensation on firm performance.

Empirical results
Sample and data
We start with all available firm-year observations of the largest 3,000 US firms on
Compustat for the years 1991-2011 and exclude observations with missing data in
ExecuComp, Tobin’s Q and/or KLD scores. Our final sample comprises of the same 181
unique firms for both Models 1 and 2[4].

Descriptive statistics and correlations

We report the descriptive statistics of all variables in Table I. The mean (median)
values (in millions) of NonExecuComp and ExecuComp are 0.074 (0.061) and 0.464
(0.429), respectively, indicating that the average salary of non-executive employees is
 30,3
AJB

204

Table I.

and correlations
Descriptive statistics
Variables Mean Median SD Tobin’s Q NonExecuComp ExecuComp WorkforceCSR Size Growth Age Risk

Tobin’s Q 1.538 1.176 0.848

NonExecuComp 0.074 0.061 0.063 0.0451
(0.0198)**
ExecuComp 0.464 0.429 0.229 −0.0230 0.1449
(0.2298) (o0.0001)***
WorkforceCSR 0.044 0 0.908 0.0028 0.0823 0.0157
(0.8824) (o0.0001)*** (0.412)
Size 8.974 8.875 1.813 −0.3839 0.1147 0.5165 0.1845
(o0.0001)*** (o0.0001)*** (o 0.0001)*** (o0.0001)***
Growth 0.089 0.063 0.394 0.1162 0.0680 −0.0056 0.0097 −0.0228
(o0.0001)*** (0.0004)*** (0.7695) (0.6126) (0.2329)
Age 28.244 25 14.159 −0.0597 −0.0979 0.3319 0.0780 0.4285 −0.0595
(0.0018)*** (o0.0001)*** (o 0.0001)*** (o0.0001)*** (o 0.0001)*** (0.0019)***
Risk 0.353 0.348 0.211 −0.3072 0.0009 0.1462 −0.1508 0.3490 0.0125 0.2856
(o0.0001)*** (0.9737) (o 0.0001)*** (o0.0001)*** (o 0.0001)*** (0.6423) (o0.0001)***
HH_Index 2,016.52 1,424.11 1,655.90 0.1413 0.0226 −0.0371 0.0938 −0.0926 0.0044 −0.0104 −0.0729
(o0.0001)*** (0.2431) (0.0528)* (o0.0001)*** (o 0.0001)*** (0.8182) (0.5873) (0.0067)***
Notes: The number of unique firms is 181. This table shows the descriptive statistics of the entire sample and the Pearson correlation coefficients. Correlation coefficients with statistical
significance are shown in italics. All variables are defined in Appendix 2. Correlation coefficients are reported at the 0.01 (***), 0.05 (**), or 0.10 (*) levels using two-tailed t-test
$74,000 ($61,000) and that of executive employees is $464,000 ($429,000). These results Monetary
confirm that executives are significantly rewarded more for their work compared to compensation
non-executive employees. The mean (median) values of Age are 28.244 (25), indicating
that the average sample firms are about 28 (25) years old.
Table I also presents the correlations among the variables. Tobin’s Q is positively
correlated with Growth (Corr. ¼ 0.1162, po0.0001) and HH_index (Corr. ¼ 0.1413,
p o 0.0001), and negatively correlated with Size (Corr. ¼ −0.3839, p o 0.0001), 205
Age (Corr. ¼ −0.0597, p ¼ 0.0018), and Risk (Corr. ¼ −0.3072, po0.0001). Non-executive
compensation (NonExecuComp) is positively correlated with Tobin’s Q (Corr. ¼ 0.0451,
p ¼ 0.0198), whereas executive compensation (ExecuComp) and WorkforceCSR are not
correlated with Tobin’s Q. In addition, non-executive compensation (NonExecuComp) and
executive compensation (ExecuComp) are positively correlated (Corr. ¼ 0.1449,
po0.0001). In interpreting correlation coefficients, one must exercise caution since
these results do not control for firm characteristic variables. Next, we turn to the results
of multivariate analyses.

The moderating effect of workforce-oriented CSR on the association between

non-executive compensation and firm performance (test of H1)
Table II reports our results of the regression analysis on the moderating effect of
workforce-oriented CSR on the relationship between non-executive compensation and
firm performance (H1). Applying Model 1, we do the OLS analysis (with robust
standard errors) and Generalized Linear Model (GLM) analysis (clustered by firm
specification) and report both results in columns 1 and 2. In column 1, the coefficient on
NonExecuComp (coeff. ¼ 1.7114, SE ¼ 0.4258) loads positively, supporting that firms
with greater non-executive compensation have better firm performance. WorkforceCSR
(coeff. ¼ −0.0598, SE ¼ 0.0437) is not significantly related to Tobin’s Q. Our primary
variable of interest, the interaction term between non-executive compensation and

Dependent variable ¼ Tobin’s Q

(1) OLS analysis (2) GLM analysis

Intercept 3.0607 (0.1713)*** 3.2004 (0.1496)***

Primary variables
NonExecuComp 1.7114 (0.4258)*** 1.1125 (0.4154)***
WorkforceCSR −0.0598 (0.0437) −0.0291 (0.0422)
NonExecuComp × WorkforceCSR 1.5208 (0.5752)*** 1.4130 (0.5713)**
Control variables
Size −0.1399 (0.0223)*** −0.1269 (0.0226)***
Growth 0.1812 (0.0479)*** 0.2040 (0.0483)***
Age 0.0009 (0.0022) 0.0009 (0.0022)
Risk −0.9642 (0.1254)*** −1.0629 (0.1269)*** Table II.
HH_Index −0.0001 (0.0001) −0.0001 (0.0001) Moderating effect of
R2 (%) 18.58 14.25 workforce-oriented
Number of firm-year observations 1,377 1,377 CSR on the
Number of unique firms 181 181 association between
Notes: The number of unique firms is 181. The number of firm-year observations is 1,377. Coefficient non-executive
estimates and standard errors (in parentheses) are reported in the table. All variables are defined in compensation and
Appendix 2. *,** and ***Statistical significance at the 0.10, 0.05, or 0.01 levels using two-tailed t-test firm performance
AJB workforce-oriented CSR, NonExecuComp × WorkforceCSR, has a significantly positive
30,3 coefficient (coeff. ¼ 1.5208, SE ¼ 0.5752). This result provides strong evidence that the
positive association between non-executive compensation on firm performance is
strengthened when the level of workforce-oriented CSR engagement is higher. That is,
workforce-oriented CSR positively moderates the relationship between non-executive
compensation and firm performance (supporting H1).
206
The moderating effect of workforce-oriented CSR on the association between executive
compensation and firm performance (test of H2)
Table III reports our results of the regression analysis on the moderating effect of
workforce-oriented CSR on the relationship between executive compensation and firm
performance (H2). Using Model 2, we do the OLS analysis (with robust standard errors)
and GLM analysis (clustered by firm specification) and report both results in columns 1
and 2. In column 1, both coefficients on ExecuComp (coeff. ¼ 1.5764, SE ¼ 0.1862) and
WorkforceCSR (coeff. ¼ 0.2137, SE ¼ 0.0672) load positively, supporting that firms with
greater executive compensation and/or workforce-oriented CSR engagement have
better firm performance. Our primary variable of interest, the interaction term between
executive compensation and workforce-oriented CSR, ExecuComp × WorkforceCSR,
has a significantly negative coefficient (coeff. ¼ −0.2509, SE ¼ 0.1281). This result
provides strong evidence that the positive impact of executive compensation on firm
performance is mitigated when the level of workforce-oriented CSR engagement is
higher. That is, workforce-oriented CSR negatively moderates the relationship between
executive compensation and firm performance (supporting H2).
In both Tables II and III, the results on control variables are generally consistent
with prior literature. Tobin’s Q increases with Growth and decreases with Risk,
confirming that high-growth firms have higher valuations, whereas riskier firms have
lower valuations. Consistent results are found with the GLM analysis (in column 2).

Dependent variable ¼ Tobin’s Q

(1) OLS analysis (2) GLM analysis

Intercept 3.3391 (0.4135)*** 3.4966 (0.1500)***

Primary variables
ExecuComp 1.5764 (0.1862)*** 1.3301 (0.1761)***
WorkforceCSR 0.2137 (0.0672)*** 0.1978 (0.0678)***
ExecuComp × WorkforceCSR −0.2509 (0.1281)** −0.1904 (0.1297)*
Control variables
Size −0.2644 (0.0271)*** −0.2363 (0.0269)***
Growth 0.1973 (0.0470)*** 0.2089 (0.0474)***
Age 0.0001 (0.0021) 0.0011 (0.0021)
Table III. Risk −0.8521 (0.1252)*** −0.9698 (0.1264)***
Moderating effect of HH_Index −0.0001 (0.0001) −0.0001 (0.0001)
workforce-oriented R2 (%) 21.57 17.38
CSR on the Number of firm-year observations 1,384 1,384
association between Number of unique firms 181 181
executive Notes: The number of unique firms is 181. The number of firm-year observations is 1,384. Coefficient
compensation and estimates and standard errors (in parentheses) are reported in the table. All variables are defined in
firm performance Appendix 2. *,** and ***Statistical significance at the 0.10, 0.05, or 0.01 levels using two-tailed t-test
To further investigate the two moderating effects, four slopes are plotted. In Figure 1, Monetary
the two slopes are determined using the mean of coefficient from Model 1 plus the compensation
maximum value of WorkforceCSR (high level of CSR) and the minimum value
of WorkforceCSR (low level of CSR). Figure 1 points out how the positive impact of
non-executive compensation on firm performance is substantial larger for firms
with higher level of workforce-oriented CSR compared to firms with lower level of
workforce-oriented CSR (supporting H1). In Figure 2, another two slopes are 207
determined using the mean of coefficient from Model 2 plus the maximum value of
WorkforceCSR (high level of CSR) and the minimum value of WorkforceCSR (low level
of CSR). Figure 2 points out how the positive impact of executive compensation on firm
performance is substantial smaller for firms with higher level of workforce-oriented
CSR compared to firms with lower level of workforce-oriented CSR (supporting H2).

Discussion and conclusion

This study investigates the moderating effect of workforce-oriented CSR on the linkage
between compensation and firm performance. Using the data of 181 S&P 1,500 sample
firms from 1991 to 2011, we found that increases in non-executive compensation and
executive compensation both improve firm performance. We further found that

10
Low level of CSR
9
High level of CSR
8
7
Firm performance

6
5
Figure 1.
4 Moderating effect
3 of workforce-oriented
CSR on the
2
association between
1 non-executive
0 compensation and
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 firm performance
Non-executive compensation

12
Low level of CSR
High level of CSR
10
Firm performance

6 Figure 2.
Moderating effect
4 of workforce-oriented
CSR on the
2 association between
executive
0 compensation and
0 0.5 1 1.5 2 2.5 3 3.5 firm performance
Executive compensation
AJB workforce-oriented CSR positively moderates the relationship between non-executive
30,3 compensation and firm performance. That is, the positive relationship between
non-executive compensation and firm performance becomes stronger when the level
of workforce-oriented CSR engagement is higher. On the contrary, workforce-oriented
CSR negatively moderates the relationship between executive compensation and
firm performance. That is, the positive association between executive compensation
208 and firm performance becomes weaker when the level of workforce-oriented CSR
engagement is higher.

Theoretical contributions
This study makes several important theoretical contributions. First, this study adds to
the extant literature on compensation and firm performance. Extant strategy literature
on compensation has primarily focussed on executive compensation and its implication
on firm performance. Such a focus on top management team is understandable given
the critical decision-making role of executives and the fact that executive compensation
accounts for a large portion of a firm’s overall labor costs (Gomez-Mejia and Wiseman,
1997). However, non-executive employees play important roles in strategy execution
and implementation and should not be ignored from the exploration of compensation-
performance relationship. We fill this gap in the literature by examining the effects of
both non-executive compensation and executive compensation on firm performance in
presence of CSR engagement and providing a comprehensive picture of the
compensation-performance relationship.
Second, while prior researchers have examined the linear association between CSR
and executive compensation (e.g. Miles and Miles, 2013; McGuire et al., 2003), if and
how CSR influences the effect of compensation on firm performance remains an open
question. We fill this gap in the literature by exploring the moderating effect of CSR on
the impacts of non-executive and executive compensation on firm financial
performance. Our results show that the relationship between compensation and
firm performance is fairly complex and contingent on other organizational factors.
Workforce-oriented CSR influences the effects of compensation on firm performance,
and more importantly, has different moderating effects on the executive compensation-
performance linkage and the non-executive compensation-performance linkage. This
finding illustrates the necessity of distinguishing compensation practices between
executives and non-executives who play different roles, namely, strategy making, and
strategy implementation.
In addition, as organizations are increasingly involved in CSR, our study provides
new angles for scholars who engage in CSR research. While recent studies increasingly
acknowledge the usefulness of engaging in CSR to improve financial performance
(McWilliams et al., 2006), few studies have examined the moderating role of CSR in
influencing the effectiveness of various organizational processes and/or practices. This
study thus complements the existing CSR research by demonstrating the interaction
of CSR and other organizational factors (compensation strategies) that contribute to
corporate competitive advantage. CSR programs need to be more concerned with how
to bring coherence to other corporate strategies.

Practical implications
Our study bears important practical implications for managers. First, this study helps
managers understand the importance of fulfilling employees’ social emotional needs.
It is the non-executive employees who make direct contributions toward firm success Monetary
through implementing firm strategies. Thus, motivating non-executive employees in compensation
order to improve firm performance represents a critical managerial task. While
providing employees with competitive compensation packages is widely acknowledged
to be an effective way of attracting and retaining employees, scholars, and practitioners
have recently started to emphasize the value of investment in workforce-oriented CSR
practices. These practices, such as providing employees with better working 209
conditions, flexible working hours, strong health and safety programs, and more
training and development opportunities, aim at fulfilling employees’ social emotional
needs. Employees of firms that behave in a socially responsible way likely find more
shared values with the company’s objectives, build stronger sense of self-esteem and
develop deeper emotional connections with employers, which often render them to
respond in a more positive manner to the monetary incentives provided by employers.
Second, this study helps managers see the potential of workforce-oriented CSR in
shaping employees’ perceived distributive justice, which refers to the fairness in the
allocation of rewards such as pay, bonuses, and promotion. Treating employees fairly,
involving employees in decision making, providing support for employees’ families,
and facilitating work-family balance of employees are all effective strategies to
strengthen the emotional bond between employees and their firms. Particularly,
employees are likely to perceive higher levels of distributive justice when being treated
in a socially responsible way. The perceived fairness in how they are rewarded for their
behaviors and performance will in turn increase the effectiveness of compensation as a
motivator in promoting firm performance.
Third, our findings are important for managers who are making critical decisions
regarding the allocation of limited corporate resources and prioritization of investment
options. Investing in all organizational activities unanimously is unlikely to generate the
best results because of their different values in generating competitive advantage as
well as the interactions between them. Given the interaction between compensation and
CSR, managers need to be strategic in allocating resources between compensation
and CSR investment to achieve better performance outcome. Increasing non-executive
compensation would have a greater impact on firm performance when there are greater
CSR activities at the firm level boosting employee morale and motivation. That is,
for firms that have made substantial investment in workforce-oriented CSR, increasing
non-executive employees’ compensation might contribute more to performance
improvement than increasing executive compensation by the same amount.
The findings of this study are also useful to boards of directors and human
resources managers who are in charge of hiring executives, building top management
teams, and deciding executive compensation. Executive compensation is a reflection of
the board’s valuation of the significance of executives’ capabilities (Peng et al., 2015)
and is a blunt motivational tool that can have limited motivational potential in certain
contexts (Chng et al., 2012). While in many cases providing greater monetary
compensation is effective in attracting and retaining capable executives, executives are
rarely only motivated by money. Relying exclusively on monetary compensation as an
incentive motivator risks ignoring executives’ important psychological and social
needs from their jobs. For example, our results show that the positive effect of
executive compensation on financial performance becomes less strong when firms
engage in higher levels of workforce-oriented CSR. One possible explanation of this
finding is that executives tend to define career success more as achievement and
pride than as financial compensation (McClelland, 1958). They are likely to gain
AJB socio-emotional wealth through their employers’ reputation of treating employees in a
30,3 socially responsible way, which make monetary incentives less important in their
calculus. As such, providing other incentives than increasing monetary compensation
is likely to serve better in enhancing executives’ productivity in firms that engage
actively in CSR. From the recruitment perspective, executives’ psychological, and social
needs from their jobs need to be considered to achieve a more successful employment in
210 the first place. In addition, executives’ psychological and social needs also need to be
incorporated in developing strategies to motive desirable managerial behaviors and
align managerial interests with organizational social-responsible behaviors.

Limitations and future research directions

This study is subject to a number of limitations upon which we propose several
promising directions for future research. First, the empirical test of this study relies
entirely on secondary data. While archival data may represent higher levels of
objectivity, it does not allow researchers to access to perceptions and other subjective
factors that influence employees’ motivations and behaviors. An extension of this
study that use primary data by survey might shed further light on the subject. The
provision of workforce-oriented CSR is often bundled with existing HR practices,
making it difficult to quantify the true/additional value contributed by CSR
(McWilliams and Siegel, 2011). To what extent do employees see workforce-oriented
CSR practices such as employee involvement, union relations, and cash profit sharing
as “extra” gains from their employers rather than common benefits they deserve?
Future research using primary data is needed to answer this important question.
Second, our results do not necessarily generalize to firms operating outside of the US
countries differ in business norms and standards, regulatory frameworks and
stakeholder demand for CSR (McWilliams et al., 2006). Different countries also have
different labor market condition and human resources management practices. It may
be fruitful to explore how cultural and institutional factors influence the relationship
between compensation, CSR and firm performance.

Notes
1. As Larkin et al. (2012) mentioned, over 80 percent of the recent articles on compensation
in top strategy journals use agency theory as the dominant foundation of analysis,
and approximately 75 percent of these papers examine executive compensation.
2. Wang et al. (2003) defined “the mutual investment employment relationship” as a combination
of offered inducements and expected contributions. That is, employers invest in employees in
terms of employment security and thus expect employees to contribute to the organization
beyond the individual job.
3. In the KLD data, strengths in the employee relations dimension refer to union relations,
employee involvement, health and safety programs, supply chain policies, programs and
initiatives, or any other strong employee relations initiatives. Concerns in the employee
relations dimension refer to union relations concerns, health and safety concerns, supply
chain controversies, and labor-management relations controversies (MSCI, 2011).
4. Actual numbers of observations used in the analyses are slightly different based on the
availability of control variables. For the non-executive compensation analysis (H1), our
sample comprises 1,377 firm-year observations representing 181 unique firms. For the
executive compensation analysis (H2), our sample comprises 1,384 firm-year observations
representing the same 181 unique firms.
References Monetary
Aguilera, R., Rupp, D.E., Williams, C.A. and Ganapathi, J. (2007), “Putting the s back in corporate compensation
social responsibility: a multilevel theory of social change in organizations”, Academy of
Management Review, Vol. 32 No. 3, pp. 836-863.
Aguinis, H. (2011), “Organizational responsibility: doing good and doing well”, in Zedeck, S. (Ed.),
APA Handbook of Industrial and Organizational Psychology 3, American Psychological
Association, Washington, DC, pp. 855-879. 211
Aguinis, H. and Glavas, A. (2012), “What we know and don’t know about corporate social
responsibility: a review and research agenda”, Journal of Management, Vol. 38 No. 4,
pp. 932-968.
Artiach, T., Lee, D., Nelson, D. and Walker, J. (2010), “The determinants of corporate
sustainability performance”, Accounting and Finance, Vol. 50 No. 1, pp. 31-51.
Ashforth, B.E. and Mael, F. (1989), “Social identity theory and the organization”, Academy of
Management Review, Vol. 14 No. 1, pp. 20-39.
Bauman, C.W. and Skitka, L.J. (2012), “Corporate social responsibility as a source of employee
satisfaction”, Research in Organization Behavior, Vol. 32 No. 1, pp. 63-86.
Berman, S.L., Wicks, A.C., Kotha, S. and Jones, T.M. (1999), “Does stakeholder orientation matter?
The relationship between stakeholder management models and firm financial
performance”, Academy of Management Journal, Vol. 42 No. 5, pp. 488-506.
Bhandari, L.C. (1988), “Debt/equity ratio and expected common stock returns: empirical
evidence”, Journal of Finance, Vol. 43 No. 2, pp. 507-528.
Budd, J.W. and Bhave, D. (2010), “The employment relationship”, The Sage Handbook of Human
Resource Management, Sage, London, pp. 51-70.
Chng, D.H.M., Rodgers, M.S., Shih, E. and Song, X. (2012), “When does incentive compensation
motivate managerial behaviors? An experimental investigation of the fit between incentive
compensation, executive core self-evaluation, and firm performance”, Strategic
Management Journal, Vol. 33 No. 12, pp. 1343-1362.
Devinney, T.M. (2009), “Is the socially responsible corporation a myth? The good, the bad, and the
ugly of corporate social responsibility”, Academy of Management Perspectives, Vol. 23
No. 2, pp. 44-56.
European Commission (2003), Responsible Entrepreneurship – A Collection of Good Practices
Among Small and Medium-Sized Enterprises Among Europe, Office for Official
Publications of the European Communities, Luxembourg.
Eweje, G. (2006), “CSR and staff retention in New Zealand companies: a literature review”,
Department of Management and International Business Research Working Paper Series
2006, No. 6, Department of Management and International Business, Massey University,
Auckland.
Flammer, C. (2015), “Does product market competition foster corporate social responsibility?
Evidence from trade liberalization”, Strategic Management Journal, Vol. 36 No. 10,
pp. 1469-1485.
Fombrun, C. and Shanley, M. (1990), “What’s in a name? Reputation building and corporate
strategy”, Academy of Management Journal, Vol. 33 No. 2, pp. 233-258.
Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA.
Godfrey, P.C. (2005), “The relationship between corporate philanthropy and shareholder wealth:
a risk management perspective”, Academy of Management Review, Vol. 30 No. 4, pp. 777-798.
Gomez-Mejia, L.R. and Wiseman, R.M. (1997), “Reframing executive compensation:
an assessment and outlook”, Journal of Management, Vol. 23 No. 3, pp. 291-374.
AJB Grow, B., Hamm, S. and Lee, L. (2005), “The debate over doing good”, BusinessWeek, August 15,
pp. 76-78.
30,3
Hannan, M.T. and Freeman, J. (1984), “Structural inertia and organizational change”, American
Sociology Review, Vol. 49, pp. 149-164.
Hillman, A.J. and Keim, G.D. (2001), “Shareholder value, stakeholder management, and
social issues: what’s the bottom line?”, Strategic Management Journal, Vol. 22 No. 2,
212 pp. 125-139.
Igalens, J. and Roussel, P. (1999), “A study of the relationships between compensation package,
work motivation and job satisfaction”, Journal of Organizational Behavior, Vol. 20 No. 7,
pp. 1003-1025.
Jenkins, G.D. Jr, Mitra, A., Gupta, N. and Shaw, J.D. (1998), “Are financial incentives related to
performance? A meta-analytic review of empirical research”, Journal of Applied Psychology,
Vol. 83 No. 5, pp. 777-787.
Jensen, M.C. (1986), “Agency costs of free cash flow, corporate finance, and takeovers”, American
Economic Review, Vol. 76 No. 2, pp. 323-329.
Johnson, R.A. and Greening, D.W. (1999), “The effects of corporate governance and institutional
ownership types on corporate social performance”, Academy of Management Journal,
Vol. 42 No. 5, pp. 564-576.
Koch, M.J. and McGrath, R.G. (1996), “Improving labor productivity: human resource
management policies do matter”, Strategic Management Journal, Vol. 17 No. 5, pp. 355-375.
Larkin, I., Pierce, L. and Gino, F. (2012), “The psychological costs of pay-for-performance:
implications for the strategic compensation of employees”, Strategic Management Journal,
Vol. 33 No. 10, pp. 1194-1214.
McClelland, D.C. (1958), “Methods of measuring human motivation”, in Atkinson, J.W. (Ed),
Motives in Fantasy, Action and Society, D. Van Nostrand Company, Inc., Princeton, NJ,
pp. 7-42.
McFarlin, D.B. and Sweeney, P.S. (1992), “Distributive and procedural justice as predictors of
satisfaction with personal and organizational outcomes”, Academy of Management
Journal, Vol. 35 No. 3, pp. 626-637.
McGuire, J., Dow, S. and Argheyd, K. (2003), “CEO incentives and corporate social performance”,
Journal of Business Ethics, Vol. 45 No. 4, pp. 341-359.
McGuire, J., Schneeweis, T. and Branch, B. (1990), “Perceptions of firm quality: a cause or result of
firm performance”, Journal of Management, Vol. 16 No. 1, pp. 167-180.
McWilliams, A. and Siegel, D. (2001), “Corporate social responsibility: a theory of the firm
perspective”, Academy of Management Review, Vol. 26 No. 1, pp. 117-127.
McWilliams, A. and Siegel, D.S. (2011), “Creating and capturing value: strategic corporate social
responsibility, resource-based theory, and sustainable competitive advantage”, Journal of
Management, Vol. 37 No. 5, pp. 1480-1495.
McWilliams, A., Siegel, D.S. and Wright, P.M. (2006), “Corporate social responsibility: strategic
implications”, Journal of Management Studies, Vol. 43 No. 1, pp. 1-18.
Mandl, I. and Dorr, A. (2007), “CSR and competitiveness European SMEs’ good practice
consolidated European report”, Austrian Institute for SME Research, Vienna.
Margolis, J.D. and Walsh, J.P. (2003), “Misery loves companies: rethinking social initiatives by
business”, Administrative Science Quarterly, Vol. 48 No. 2, pp. 268-305.
Martin, J., Petty, W. and Wallace, J. (2009), “Shareholder value maximization – is there a role for
corporate social responsibility?”, Journal of Applied Corporate Finance, Vol. 21 No. 2,
pp. 110-118.
Miles, G., Evangelopoulos, N. and Russell, L. (2007), “Trends in management research: Monetary
a comparative review using latent semantics”, presented at Academy of Management
Meetings, Philadelphia, PA.
compensation
Miles, P.C. and Miles, G. (2013), “Corporate social responsibility and executive compensation:
exploring the link”, Social Responsibility Journal, Vol. 9 No. 1, pp. 76-90.
Morgeson, F.P., Aguinis, H., Waldman, D.A. and Siegel, D.S. (2013), “Extending corporate social
responsibility research to the human resource management and organizational behavior 213
domains: a look to the future”, Personnel Psychology, Vol. 66 No. 4, pp. 805-824.
MSCI (2011), “MSCI ESG STATS user guide & ESG ratings definition”, MSCI Inc., New York, NY.
Organ, D.W., Podsakoff, P.M. and MacKenzie, S.P. (2006), Organizational Citizenship Behavior:
its Nature, Antecedents and Consequences, Sage Publications, London.
Palia, D. (2001), “The endogeneity of executive compensation in firm valuation: a solution”,
The Review of Financial Studies, Vol. 14 No. 3, pp. 735-764.
Peng, M.W., Sun, S.L. and Markóczy, L. (2015), “Human capital and CEO compensation during
institutional transitions”, Journal of Management Studies, Vol. 52 No. 1, pp. 117-147.
Roberts, P.W. and Dowling, G.R. (2002), “Corporate reputation and sustained superior financial
performance”, Strategic Management Journal, Vol. 23 No. 12, pp. 1077-1093.
Rolfe, S. (2007), “Predictive ability of the efficiency, agency and tournament theories at the non-
executive level: evidence from Canadian compensation survey data”, UMI Dissertations
Publishing No. 327104, doctoral dissertation, Proquest, Cypress, CA.
Servaes, H. and Tamayo, A. (2013), “The impact of corporate social responsibility on firm value:
the role of customer awareness”, Management Science, Vol. 59 No. 5, pp. 1045-1061.
Siegel, D.S. and Vitaliano, D. (2007), “An empirical analysis of the strategic use of corporate
social responsibility”, Journal of Economics and Management Strategy, Vol. 16 No. 3,
pp. 773-792.
Singh, M.P. and Sinha, J. (2013), “Job satisfaction in organizational executives”, International
Journal of Scientific and Research Publications, Vol. 3 No. 4, pp. 2250-3153.
Sirmon, D.G. and Hitt, M.A. (2009), “Contingencies within dynamic managerial capabilities:
interdependent effects of resource investment and deployment on firm performance”,
Strategic Management Journal, Vol. 30 No. 13, pp. 1375-1394.
Skinner, B.F. (1953), Science and Human Behavior, Macmillan, New York, NY.
Spender, J.C. and Strong, B. (2010), “Who has innovative ideas? Employees”, The Wall Street
Journal, August 23, p. R5.
The Coca Cola Company (2014), “The 2013/2014 sustainability report”, available at: http://assets.
coca-colacompany.com/77/4c/2a44a5234a3ca65d449d174a0ded/2013-2014-coca-cola-
sustainability-report-pdf.pdf, (accessed October 15, 2014).
Timpe, A.D. (1986), Motivation of Personnel: the Art and Science of Management, Facts on File
Publications, New York, NY.
Tsui, A.S., Pearce, J.L., Porter, L.W. and Tripoli, A.M. (1997), “Alternative approaches to the
employee-organization relationship: does investment in employees pay off?”, Academy of
Management Journal, Vol. 40 No. 5, pp. 1089-1121.
US Bureau of Labor Statistics (2014a), Occupational Outlook Handbook – Management
Occupations, US Bureau of Labor Statistics, Washington, DC.
US Bureau of Labor Statistics (2014b), Occupational Employment Statistics – Payroll and
Timekeeping Clerks, US Bureau of Labor Statistics, Washington, DC.
Verschoor, C. (2005), “Is there financial value in corporate values?”, Strategic Finance, Vol. 87
No. 1, pp. 17-18.
AJB Waddock, S.A. and Graves, S. (1997), “The corporate social performance-financial performance
link”, Strategic Management Journal, Vol. 18 No. 4, pp. 303-319.
30,3
Wang, D., Tsui, A.S. and Ma, L. (2003), “Employment relationships and firm performance:
evidence from an emerging economy”, Journal of Organizational Behavior, Vol. 24 No. 5,
pp. 511-535.
Whittlesey, F. (2006), “The great overpaid CEO debate”, CNET News, June 1.
214 Wright, P.M., Dunford, B.B. and Snell, S.A. (2001), “Human resources and the resource-based view
of the firm”, Journal of Management, Vol. 27 No. 6, pp. 701-721.
Wright, P.M., McMahan, G.C. and McWilliams, A. (1994), “Human resources and sustained
competitive advantage: a resource-based perspective”, International Journal of Human
Resource Management, Vol. 5 No. 2, pp. 301-326.

Appendix 1. Two examples of workforce-oriented CSR

Example 1
In fiscal year 2013, the Coca Cola Company kept reinforcing its commitment to active, healthy
living and well-being of employees in global market with activities such as lunchtime walks with
senior leaders, Tai Chi classes, presentations on balanced living, and the promotion of employee-
driven well-being ideas. In addition, it took a comprehensive approach to promoting its
workplace culture, providing employee training programs, such as the introduction of 2020
Leadership Behaviors, Millennial Voices program, Start-up Weekends and a new experiential
learning program. The investment in employees and efforts to build a strong workplace culture
have been rewarded in the global marketplace for attracting and retaining outstanding and
innovative employees. In 2013, the Coca Cola Company made to 26 lists, including the World’s 25
Best Multinational Workplaces (The Coca Cola Company, 2014).

Example 2
The small Austrian consulting company “denkstatt GmbH” has been conducting a workforce-
oriented CSR project, “Think!Healthy”, to support the well-being of employees. The company
provides employees with fruits and milk free of charge, and one or two employees cook a healthy
meal a couple of times every week for all employees during their working time. The employees have
the chance to take a nap of 20 minutes. The company also offers a sports program and creates a
pleasant working environment (Mandl and Dorr, 2007). All these workforce-oriented CSR activities
contribute to high motivation of employees and a continuous growth of the company. In 2005,
denkstatt GmbH received the “Trigos Award” (a prize for Austrian companies that show corporate
social responsibility) for its workforce-oriented CSR project, Think! Healthy.
Appendix 2 Monetary
compensation

Dependent variables
Tobin’s Q ¼ the sum of total assets and market value of equity minus book
value of equity, divided by total assets
215
Variables of interest
NonExecuComp ¼ staff compensation expense per person provided by
Compustat data
ExecuComp ¼ top executive salary per person provided by ExecuComp data
WorkforceCSR ¼ the sum of Strengths minus the sum of Concerns in the
Employee Relations category provided by the KLD data
NonExecuComp × WorkforceCSR ¼ the interaction term of NonExecuComp and WorkforceCSR
ExecuComp × WorkforceCSR ¼ the interaction term of ExecuComp and WorkforceCSR
Control variables
Size ¼ natural logarithm of total assets
Growth ¼ the sales growth from year t−1 to t
Age ¼ firm age, calculated as the current year subtracted from the
first year in business
Risk ¼ long-term debt divided by total assets
HH_Index ¼ Herfindahl-Hirschman Index, calculated by summing the Table AI.
squares of the percent market share held by each firm in the Variable
industry (using the 2-digit SIC code) measurement

Corresponding author
Dr Mingming Feng can be contacted at: mingming.feng@wmich.edu

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.