Management Accounting Section Midyear Meeting

Copycat Behavior in CSR Incentive Contracts: The Role of Board Interlocks

• In Event: Beyond Profits (Archival)

Abstract

The choice of performance measures in incentive contracts is usually explained by economic determinants, largely ignoring the impact of social dynamics between boards. In this paper, we introduce imitation behavior in the research on incentive contract design. To examine this issue, we focus on the adoption of CSR performance measures in CEO incentive contracts. Using a sample of U.S. listed companies for the years 2006 to 2015, we show that firms introducing CSR performance measures in CEO compensation schemes tend to copy the CSR incentive contracts of their tied-to partners. Interestingly, our results indicate that incentive contract imitation happens not only through compensation committee interlocks, but also through CEO interlocking ties. Furthermore, our results indicate that imitation via compensation committee interlocks is efficient, as it is associated with an improvement in both financial and nonfinancial performance. In contrast, if imitation occurs through CEO interlocks, there is no improvement in financial and nonfinancial performance while CEO incentive compensation increases. This paper is the first to offer archival evidence on imitation behavior in corporate boards and may offer insights to policy makers on when imitation may improve or hamper efficient contracting.

Authors

• Charlotte Antoons, KU Leuven

• Liesbeth Bruynseels, KU Leuven

• Eddy Cardinaels, Tilburg University