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CEO risk sensitivity and employee-related irresponsibility: A moderating role of managerial discretion
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Jegoo Lee 
This work is licensed under a Creative Commons Attribution 4.0 International License.
Abstract
This study explores whether risk-based chief executive officer (CEO) compensation, specifically, the sensitivity of CEO pay to firm risk exposure (CEO risk sensitivity), can serve as an incentive to reduce employee-related corporate social irresponsibility (E-CSI). Motivated by growing concerns over corporate harm to employees and the need to align executive incentives with broader stakeholder interests, we examine whether CEOs treat E-CSI as a risk-mitigating strategy when incentivized with risk sensitivity. Using a panel data of over 17,000 firm-year observations from large U.S. public companies from 1998 to 2018, and fixed effects Poisson regression, we find that higher CEO risk sensitivity is associated with significantly lower E-CSI. This relationship is amplified in firms in contexts characterized by high managerial discretion, across individual, organizational, and industry levels. Our findings reveal that risk-sensitivity pay promotes CEOs paying attention to corporate harmful behaviors toward employees. These insights challenge a conventional view that CEO compensation serves only shareholder interests and highlight a novel, risk-aligned pathway to improving employee outcomes. The result provides practical implications for boards, regulators, and policymakers aiming to design CEO incentives that align with responsible corporate behavior toward employees.
Keywords: Corporate Social Irresponsibility (CSI), Employee-Related Corporate Social Irresponsibility (E-CSI), CEO Risk Sensitivity, Risk Management, Managerial Discretion
Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.
Declaration of conflicting interests: The Author declares that there is no conflict of interest.
JEL Classification: M1, M12, M14
Received: 31.08.2025
Revised: 18.10.2025; 13.11.2025
Accepted: 18.11.2025
Published online: 20.11.2025
How to cite this paper: Lee, J. (2025). CEO risk sensitivity and employee-related irresponsibility: A moderating role of managerial discretion. Corporate Ownership & Control, 22(3), 185–196. https://doi.org/10.22495/cocv22i3art15
