Appointment-Based CEO Connectedness and Employee Compensation: Empirical Evidence from China

Abstract

Employee compensation is an often-neglected but essential part of corporate social responsibility which emphasizes caring for the needs of all stakeholders, including employees. In order to address pressure from stakeholders to strengthen prosocial acts, CEOs might prefer to raise employee compensation. However, other top executives are often reluctant to do so due to the concern that it reduces firm profits. In this paper, we propose that appointment-based CEO connectedness (ABCC) has a positive effect on employee compensation as it facilitates CEOs gaining support from the top management team to raise employee compensation. We employ multivariate linear regression as our research approach and find supportive evidence using data from Chinese listed firms during 2011–2020. Our results are robust to endogeneity concerns and survive an array of robustness checks. Heterogeneity tests show that this impact is stronger for firms facing less market competition and firms with low financial constraints. We further show that greater ABCC is associated with higher CSR scores of non-shareholders responsibility dimensions. Overall, our study suggests ABCC is conducive to the fulfillment of corporate social responsibility towards non-shareholders.