Pay gaps, board diversity and social responsibility performance

Abstract

Orientation: Amid increasing stakeholder scrutiny of fairness in executive compensation and inclusive governance, there is growing interest in how internal pay structures and board composition influence firms’ social responsibility performance (SRP). Research purpose: This study examined the relationship between internal pay gaps (salary gaps and gender pay gaps) and SRP, as well as the effect of board diversity on this relationship. Motivation for the study: Existing research often treats pay disparities and board diversity as separate governance concerns. This study integrates these dimensions to examine their combined influence on SRP, addressing a gap in the literature. Research approach/design and method: Using firm-level data from the Refinitiv Eikon Database covering the period 2003–2023, this study applies panel regression models to analyse the direct effects of salary and gender pay gaps on SRP. Moderated regression analyses were conducted to assess the interaction effects of board gender diversity and board nationality diversity. Main findings: The findings show that both salary and gender pay gaps positively influence SRP, suggesting that firms with higher internal pay disparities may pursue SRP as a legitimacy-enhancing strategy. However, the moderating effects of board diversity are inconsistent. Practical/managerial implications: The results suggest that while internal pay gaps may incentivise social responsibility actions, board diversity alone may not strengthen this effect, highlighting the need for complementary governance mechanisms. Contribution/value-add: This study advances understanding of how pay structures and governance interact to shape SRP, offering integrated insights for scholars, boards and policy makers.