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Should Public Company Boards Tie ESG Performance Metrics To CEO / C-Suite Compensation & Incentives? The topic of compensation and incentives for CEOs and close colleagues in the C-suite of public companies has been of interest to the sustainable & responsible investment community, as well as a growing number of mainstream investors, especially since the early 1990s when CEO pay began to rise dramatically. The board of directors approves the pay package, with consists of cash (salary, often a modest number), options, deferred compensation in the form of shares-to-be-earned, and numerous other benefits. As discussions about executive compensation became headline news is such venerable media as The Wall Street Journal, focus of investors and numerous stakeholders became more intense. The legitimate question is: Exactly what should CEO pay and incentives reflect in large publicly-owned enterprises? It became a popular trend in board rooms to acknowledge growing investor concerns and responding by establishing “pay-for-performance” approaches. A CEO may earn more if the share price rises is one example of p-f-p. (Of course, won’t all shareowners be happy if the share price rises on the CEO’s watch?) But tying too much of the p-f-p to short-term gains is not a good thing, many engaged institutional investors say. The board and C-suite should be looking out to the longer term and shaping incentives around the efforts to build a stronger, yes, more sustainable enterprise that will continue to prosper for all stakeholders over the decade, not the immediate reporting period. The public dialogue on CEO pay began and has endured as part of the focus by activist investors on encouraging more effective corporate governance. Reflecting the populist concern, the passage of Dodd-Frank reform legislation mandated shareowner voting on executive compensation plans (the vote is still “advisory,” not binding on boards setting pay packages). Over the past decade, as more asset owners and their managers focused on corporate ESG performance and sustainability achievements, the idea of tying compensation to achievements in ESG performance has slowly entered the discussion about executive compensation. Tip-toed in, we might say. In theory, what investor would not want to put their trust in the company that has outstanding ESG performance? Is demonstrably more sustainable? Ah, but what about the notion of tying CEO pay-for-performance to gains in ESG performance? How do you reward the leader for leading the company’s achievements in reducing GhG emissions, reducing water use, reducing or eliminating waste-to-landfill? A relative handful of companies are taking this approach – think of Unilever as a prime global example -- but respected sustainability experts like Bennett Freeman (former SVP of the Calvert Group) observes -- “Executive Compensation links to sustainability is still an extraordinary, rare phenomenon with large-cap companies…” We believe there will be increasing discussion going forward among investors, and between investors and boards and company managements, about executive compensation and the relationship to corporate ESG performance. The new element for shareowner activists will be encouraging boards to frame executive compensation within the context of greater ESG performance and corporate sustainability. We may have a long way to go before this becomes part of the broad discussion on effective corporate governance. But the “G” in ESG has been steadily rising in importance for investors. Our Top Story this week presents excellent perspectives on CEO Pay/Sustainability (p-f-p) by reporter Keith Larsen on the GreenBiz platform. The Unilever sustainability p-f-p example is described as well as the efforts of Royal DSM North America, which embraced the concept back in 2010. Top Story of the Week Why tying CEO pay to sustainability still isn't a slam dunk Sustainability in Focus Sustainability: From Surviving To Thriving Warts and all: the route to sustainability isn’t always pretty Two radically different cities, and the sustainability challenges they face Manufacturers quietly seize the opportunity to lead on sustainability Bridging the Gap Between Health and Environmental Sustainability The good, the bad and the ugly: sustainability at Nespresso Can companies become cities’ sustainability savior? Sustainability and Coffee Sustainability Doesn't Need Rock Stars; We Need Unsung Heroes The case for sustainability reporting Accountability for Sustainability Up and Down the Line ESG Issues & Players Who’s to Blame For California’s Water Shortage? Look In A Mirror Investment fund CEOs call for long-term greenhouse gas cuts Editorial: Executive compensation, ever higher, ever less justifiable With new EPA water rule, Obama again takes executive action on environment Asset Managers, US Pension Funds, Norway oil fund may have to sell out of up to 75 firms due to coal ban Vatican bank profits rebound as clean-up continues State pension fund hits new high Watching the Watchers Headquarters: Marseille, France KEY PARTNERS WWC calls itself an “international multi-stakeholder platform” and stresses its ability to enable those stakeholders to debate issues related to water and participate in activities including the World Water Forum. The World Water Council receives financial and other support from memberships and the city of Marseille, where the Council is based. The World Water Council counts as members over 300 diverse organizations from over 60 countries. News Sweeps | Check It Out... G&A's Sustainability Update™ NASDAQ OMX Group and CRD Analytics Announce Companies In/Out of the Sustainability Benchmark Sweeping Changes in Corporate Sustainability? Yes – Check Out Sustainable Brands Top 10 _______________________________ _______________________________ Sustainability & Corporate Responsibility Reporting G&A Institute is the Global Reporting _______________________________
_______________________________ _______________________________ Corporate ESG Performance Factors are important to financial analysts, asset owners and managers, and many stakeholders. The ESG framework or approach considers environmental issues and impacts, the company’s positioning and actions on social/societal issues, and important aspects of corporate governance. ESG key performance indicators are considered by investors as proxies for effective governance and management. Increasing numbers of of independent research and financial analysis firms monitor and measure these and advisie investors. The Sustainability HQ™ platform is an important profiling and monitoring resource for the G&A team, and for our clients and subscribers. ESG market players and corporate reputation influencers are profiled and monitored by G&A Institute. In these Highlights we provide some results of our continuous global scanning for ESG, sustainability and corporate responsibility news. The Associated Profiles indicated are in our Sustainability HQ™ platforms. For more information, please email us at info@sustainabilityhq.com
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SustainabilityHQ Highlights is prepared by the Governance & Accountability Institute, Inc. based on continuous monitoring of trends and developments in Sustainability and ESG. Click here for more information on the Governance & Accountability Institute’s SustainabilityHQ resources. The SustainabilityHQ™ platform is available by subscription. Governance & Accountability Instiute is the “Sustainability Headquarters™” for clients in the corporate, investment, public and social sectors. Based in New York, G&A is a for-profit consulting organization providing a range of value-added strategies, services and resources related to ESG & sustainability to clients in the corporate and capital markets communities.The G&A services portfolio includes: SustainabilityHQ™ is managed and published by Governance & Accountability Institute, Inc. | |||
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