CEO compensation and corporate social responsibility

•CEO compensation is negatively associated with CSR, especially in better-governed firms.•We decompose CSR investment into a normal component and an abnormal component.•CEO compensation is positively (negatively) associated with normal (abnormal) CSR.•Thus, CEOs receive lower compensation level for excessive investment in CSR.•Better-governed firms penalize abnormal CSR more than poorly governed firms.

We examine the association between CEO compensation and corporate social responsibility (CSR). We find that CEO compensation is negatively associated with CSR investment. We find CEO compensation is positively associated with normal CSR, suggesting that CEO is rewarded for investing in optimal level of CSR. The positive association between CEO compensation and normal CSR is more pronounced in firms with stronger corporate governance. However, CEO compensation level is negatively associated with abnormal CSR, suggesting that when CSR investment deviates from its optimal level, CEOs receive lower compensation level for excessive CSR investments. Firms with good corporate governance penalize abnormal CSR.