Do Socially Responsible Firms Add Value for Their Employees?-- A Theoretical Examination of Corporate Employee Matching Grant Programs

Many companies donate money for social causes, either directly at the firm level or indirectly by offering employee matching grants. Built upon a standard public good model, we show that (1) lump-sum corporate donation is equivalent to individual employees ’ personal donations; (2) employee matching grant programs, although could potentially act as a co-ordination mechanism to mitigate free-riding behavior and achieve Pareto improvement, cannot sustain because the employees have incentive to switch to work for regular firms paying a higher salary; (3) If there is an improvement in labor productivity in companies offering matching grant, then there exists a separating equilibrium in which socially conscious employees choose to work and stay with firms offering such a matching grant, while regular employees choose to work for firms without such a plan. Judging from the prevalence of employee matching grant programs in the real world, we conclude that socially responsible firms may add either pecuniary benefits of increased labor productivity or non-pecuniary benefits of collective “warm-glow ” to their employees