The past decade has seen companies increasing investments in initiatives of corporate social responsibility (CSR), such as donating a share of profits to charity. Some studies have argued that these initiatives can help attract workers and motivate them to work harder, for a greater good. A new paper suggests that CSR can be a useful tool for companies, but a potentially harmful one for employees.

Corporate social responsibility (CSR) has become the buzzword of the corporate world during the last decade, and it seems to have become a “must have” for any decent size firm. CSR is a broadly used term, but it essentially refers to any self-regulated initiative that a company might pursue to contribute to a societal goal, such as committing to ethical practices or reducing its carbon footprint. But perhaps the most common type of CSR initiative is to donate a portion of the firm’s profits to charity. 

Some reports estimate that Fortune Global firms spend around $20 billion a year on CSR activities, and that more than 90 percent of the 250 largest companies in the world produce an annual CSR report. This is not too surprising, since investing in CSR appears to pay off, both in terms of sales and lobbying power. More recently, it’s been argued that CSR can also be a great tool to attract and motivate workers. According to a recent survey of workers at large US firms, 40 percent of millennials report that they have chosen a job because of company sustainability, and three-quarters report that they would be willing to accept a lower wage to work at a socially responsible company.

These findings have been supported by studies that tested some of these hypotheses experimentally. A common feature of these studies is that they use an experiment called the “gift exchange game,” where participants play the role of firms (setting wage offers and making a profit if the matched worker reciprocates with high effort), or workers (choosing how much effort they want to provide given the wage the firm offered, minus the cost of providing effort). In these experiments, most workers consistently deviate from selfish behaviors and reciprocate a higher wage offer with higher effort, even if there’s no enforcing mechanism to do so. More recently, some studies have tested whether showing workers that part of the firm’s profits is donated to charity would change their behavior. Results show that not only do workers work harder, but also that they are willing to do so for a lower wage.

In a recently published study with co-authors Prof. Nick Feltovich and Prof. Robert Slonim, we wanted to better understand what mechanisms would lead workers to prefer CSR over a higher wage. We realized that an important feature that was missing in previous studies was the role of self-selection—workers first choose which company or organization they want to work for, and then, once hired, they provide effort.

The intuition behind this mechanism is simple but crucial. Consider an investment banker and a charity fundraiser: the reasons that led them to apply for those jobs are very different, and as such it’s reasonable to expect them to respond differently to a higher wage or a higher CSR donation when they are in the job. So, would a higher CSR contribution always attract and motivate any type of worker in lieu of a higher wage? If companies compete to attract talent via wage and CSR offers, which one is most effective? And does offering CSR enable firms to lower their wages without impacting workers’ reciprocity to the firm (or perhaps even boosting it)?

“Workers seem to care about how much money the firm donates to charity only when two job offers are identical in wages, with a higher CSR breaking the tie.”

Motivated by these questions, we ran an experiment where we varied whether workers could or not choose the firm they wanted to work for, and then decided how much costly effort to provide. We find that when workers can choose who to work for, they nearly always prefer the firm offering the higher wage, and they seem to pay less attention to the CSR part of the job offer. Workers seem to care about how much money the firm donates to charity only when two job offers are identical in wages, with a higher CSR breaking the tie.

We also find that workers work harder when they are paid a higher wage rather than when they see that the company donates a higher amount to charity. Interestingly, we also find that firms use CSR strategically to attract workers in a competitive labor market, but to keep their profits stable they take away the donation money from the worker’s paycheck. As a result, when firms invest in CSR, workers lose a substantial part of their salaries.

As with every study, there are a few caveats. Our only measure of job satisfaction is wages. It is possible that employees get greater pleasure from working for a socially responsible firm even if this comes at a cost to their salary. However, future research could investigate whether this is always the case across firms. Another question is whether employees consider donations to charity as an effective way to contribute to societal goals, or if they would prefer to receive a higher salary and choose how they might want to donate some of their own money. In sum, we still have much to learn about the pros and cons of CSR and how it might affect the labor market. Our study demonstrates that CSR can be an additional tool for firms to attract new employees, but that this won’t necessarily translate in the employees being more motivated at work. We have also shown that if the CSR budget comes from the cuts to paychecks, then these initiatives can be a double-edged sword for workers. One would hope to see CSR initiatives at the core of a firm’s mission, rather than coming from their marketing department budget.