Management Accounting Section Midyear Meeting

Adopting CSR Performance Measures into Executives’ Compensation Contracts: Does Board Experience Matter?

• In Event: Beyond Profits (Archival)

Abstract

While the adoption of CSR performance measures in executive compensation contracts (hereafter, CSR contracting) has become prevalent in recent years, the question whether this adoption reflects a substantive commitment or merely a symbolic attempt remains unclear. I approach this question by focusing on one factor that may help firms to substantively adopt CSR contracting. Specifically, I investigate whether directors’ recent experience of using CSR performance measures in other firms, as an important information source of designing and implementing these measures, explains the adoption in the focal firm. I argue that director experience only matters for substantive adopters who care about the efficiency and uncertainties of CSR contracting, but is not relevant for symbolic adopters. I find a positive association between directors’ recent experience and CSR contracting adoption in the focal firm. In addition, firms’ reliance on director experience increases when the uncertainty of CSR contracting increases. Further, adopters with experienced directors do show higher substantiveness in CSR contracting than the adopters without experienced directors. Overall, my findings reflect firms’ substantive adoption intention of CSR contracting. This study contributes to management accounting literature on the debate of whether the adoption of complex performance measures such as CSR contracting is symbolic or substantive, and highlights the role that director experience plays in designing performance measurement systems.

Author

• Lu Yang, Monash University