Research on social progress incentive proposed by Chey Tae-won published in international journal, confirming 'virtuous cycle effect'

The Center for Social Value Enhancement Studies (CSES) announced Thursday that research on the Social Progress Credit (SPC) system it supported has been published in an international Social Sciences Citation Index journal in the field of social sciences.

The SPC is a performance-based compensation system that measures the social value created by social enterprises in monetary terms and pays incentives proportional to those results. SK Group Chairman Chey Tae-won proposed the concept at the World Economic Forum in Davos in 2013 as a policy solution for addressing social problems — one calling for the objective measurement of social value and its reward through market mechanisms. Publication of research validating the SPC's policy effects in an international SSCI journal gives the system an objective academic foundation.

The findings appear in a paper by Kim Sang-jun, a professor at Ewha Womans University's School of Business, titled "Responses of Dual-purpose Organizations to Economic Compensation: an Agent-based Model Approach," published in June in "Computational and Mathematical Organization Theory," an international SSCI journal in the field of organizational simulation.

The study used SPC data provided by CSES and employed an agent-based model (ABM) to analyze how the SPC affects social enterprises' social value (SV) and economic value (EV).

The cover of the international SSCI journal carrying the study on the effectiveness of the Social Progress Credit (SPC). [Provided by CSES]

The researchers first conducted in-depth interviews with 23 social enterprises participating in the SPC program to analyze their characteristics and decision-making processes. Based on those findings, they classified social enterprises into four types: early-stage organizations with low social and economic performance, organizations focused on social performance, organizations focused on economic performance, and ideal hybrid organizations with strong performance in both areas. The team then created 1,000 virtual firms for each type — 4,000 in total — configured to make repeated decisions as real companies would, and simulated the behavioral changes and performance of social enterprises over seven years under the assumption that SPC payments were being made.

The analysis found that the SPC creates a virtuous cycle in which social enterprises' social and economic performance grow together. Firms that received SPC first showed heightened motivation to create social value, which in turn improved their social performance. That improved social performance then led to additional SPC rewards, expanding the firms' resources, which were reinvested to further raise both social and economic performance — forming a self-reinforcing cycle. This shows that the SPC can function as a policy instrument that goes beyond simple fiscal support to drive behavioral change in social enterprises.

Both social and economic performance increased across all types of social enterprises that received SPC, with the largest effects seen among early-stage firms with low performance in both areas. The researchers noted that while the effects of SPC tend to diminish gradually over time, the system delays the point at which growth slows compared with enterprises that receive no SPC, suggesting it can serve as a safeguard that enhances the sustainability of social enterprises.

"Through simulation, we confirmed that performance-based compensation such as SPC can strengthen social enterprises' motivation to create social value and form a virtuous cycle in which improved social performance leads to improved economic performance," said Kim Sang-jun, professor at Ewha Womans University's School of Business. Na Seok-kwon, chief executive of CSES, said he hopes the research will serve as an important policy basis for future discussions on institutionalizing the SPC system.

keg@heraldcorp.com