To Pay or Not to Pay: An Analysis of the Compensation Gap Between the CEO and the Average Worker, and the Implication on the Corporate Social Responsibility of the Firm

Purpose – The primary purpose of this paper is to explore whether firms with large compensation between the CEO and the average worker is going to have higher / lower corporate social responsibility ratings. Design / methodology / approach – The empirical firm characteristic data is collected from Compustat, CEO characteristic data is collected from Execucomp, corporate social responsibility data is using KLD rating as my proxy, and finally social contract data is kindly provided by Professor Frank Li. Findings – In line with the hypotheses, results indicate that firms with large CEO compensation gap is negatively associated with both corporate social responsibility rating and employee relations. Practical implications – The results offer an important connection between corporate social responsibility and CEO’s compensation gap. Such connection can be very helpful to those socially responsible investors. Originality / Value – The first paper to bring forth the concept of CEO compensation gap, and connects with another popular concept of corporate social responsibility.