Can Socially Responsible Firms Survive Competition? An Analysis of Corporate Employee Matching Grant Schemes

February 6, 2019

Coordinating Employees Charitable Giving through Employee Matching Grants

In 2017, total US corporate giving amounted to $20.77 billion and approximately one third of S&P 1500 firms offer matching grants to support employee charitable giving. How can companies afford to be philanthropic when they must compete for capital and labor? We examine the public good nature of charitable giving and show that properly-designed matching schemes can coordinate employee giving, increase employee satisfaction, and allow charities to raise more money, and can do so without sacrificing shareholder profits.

Public goods are associated with “free-rider” problems. Even when socially-conscious employees derive satisfaction from giving per se, they still benefit from free-riding on the contributions of others and the total amount of public goods provided through a decentralized, voluntary contribution mechanism will be suboptimal. One way to mitigate the free-rider problem is to rely on a central planner who coordinates donors’ giving. Gong and Grundy show that corporations can play such a role through either corporate lump-sum donations or corporate matching grant schemes.

Both lump-sum donations and employee matching schemes can achieve the same coordinated outcome if all employees are socially conscious. However, when not all employees are socially conscious, “regular” employees (i.e., those who value the public good less highly) can be poached by rival firms that do not have a corporate-giving program and can therefore afford to offer higher take-home salaries.  The higher take-home salaries at rival firms might also tempt socially-conscious employees to switch employers. Interestingly, matching schemes will be less vulnerable than lump-sum corporate donation to switching by socially-conscious employees. If an employee does defect from a firm with a matching scheme, their former employer’s match will end, and the utility of the socially-conscious switching employee will be reduced.