Alignment Versus Monitoring: An Examination of the Effect of the CSR Committee and CSR-Linked Executive Compensation on CSR Performance

This study examines how the CSR committee and CSR-linked executive compensation jointly affect CSR performance as governance mechanisms. Prior studies provided mixed results on the CSR committee's effect on CSR performance. We posit that a CSR committee has both a direct and an indirect positive effect on CSR performance, with CSR-linked compensation playing the role of mediator in the relationship. We base our analysis on a sample of 164 Canadian firms covering the period 2012-2018, for a total of 952 firm-year observations. We propose a regression-based approach for our mediation research design. Our findings reveal that CSR-linked compensation mediates the CSR committee's positive effect on performance, but the type of mediation depends on whether the performance is social or environmental. We provide evidence of both direct and indirect effects on environmental performance but only a positive indirect effect on social performance. These results suggest that demands from the firm's internal and external stakeholders are treated differently, with the former receiving priority.