CSR contracting and performance-induced CEO turnover

Motivated by the rise of linking CEO compensation to corporate social responsibility (hereafter, CSR contracting), we examine the impact of CSR contracting on CEO performance-induced turnover. Using a sample of S&P 500 firms with hand collected information on the use and substantiveness of CSR contracting from proxy statements between 2004 and 2018, we find that CSR contracting firms are associated with reduced turnover–performance sensitivity. Furthermore, CSR contracting's effects hold regardless of CEO power, although the impact appears to be concentrated in observations both during and after the global financial crisis, in firms with superior CSR ratings, and in those managed by more able CEOs. Channel tests reveal that non-transient institutional ownership and shareholder voting support increase following CSR contracting. Jointly, these patterns are consistent with the notion that CSR contracting helps signal a firm's long-term strategies, attract investors for whom social returns are an issue, and build trust between a firm and its investors, thereby reducing the importance of short-term financial performance related to CEO dismissal decisions.