Monthly Archives: May 2018

Executive Compensation and the Investor, Worker & Stakeholder: The New Corporate Disclosures on CEO Pay Ratios Are Now Part of the Public Dialogue

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There are some interesting new angles to the perennial public dialogues that go on about issues related to executive compensation.  The new news is regarding the compensation packages for the Top Man (in the Fortune 500 universe, there are only 24 companies that have female CEOs) and the relationship of that sum to (1) the employees of the firm and (2) the shareholders, including key fiduciaries managing OPM (other peoples’ money).  The CEO Pay Ratio disclosures of 2018 are now becoming more of a public dialogue.

One thread of conversation that is gaining some momentum in the public square is about the ratio of the CEO’s pay to the median worker pay at various companies in specific sectors.  This disclosure was mandated in 2010 with passage of the Dodd-Frank reform legislation and it took until this year before the final rules were in effect for public company disclosure, and the disclosures began.  The analysis of what this all might mean to investors and stakeholders is now underway.

The CNBC commentator James Thorne, for example, explored the ratio issues in a post on May 13th.  He begins his commentary by noting that for decades, as publicly-traded companies disclosed their CEO’s pay, criticism could rise when investors thought the pay was not justified by the company’s performance.

Now that the CEO-to-Median employee disclosures are being made, Thorne’s initial conclusion was that companies with certain characteristics — closer CEO pay to workers in the ratio —  maygenerate a higher profit-per-worker than firms with a wider gap. He began his research with the question:  does the ratio say something about performance?  The CNBC analysis suggested that it did — with equal pay distribution generating higher profit per worker.

In examining corporate disclosure on the pay ratio to date, the “bunching up” seems to be in the 200-300-400 (200-to-one, etc.) range, with some firms having ratios as high as 800 to 1,000 CEO pay to the median.  The analysis was performed by Calcbench.

The CNBC commentary explains that ratios can vary, depending on factors like company size, geographic distribution and percentage of part-time or seasonal workers; companies also have latitude in deciding how the ratio is calculated (and then disclosed). The Willis Towers Watson firm noted that direct (company-to-company) comparisons can be difficult. The SEC cautioned that firm-to-firm comparisons were not the intent of the disclosure rule.

Touching on something relevant to the investment side is Ric Marshall, MSCI’s executive director of ESG research:  “The investors who will find the most value [in ratio disclosures] are those who have concerns about inequality.”  Here at G&A we are seeing a steady flow now of news and commentary on the ratio issue from investors and other stakeholders focused on inequality and related societal issues.

With fundamental changes in the structure and definition of “worker” the short- and longer-term effects of these changes are being examined by a host of social scientists and pundits. (The familiar “rank and file” has been replaced by part-timers, seasonal workers, contractors, consultants, outsourced workers, and more variations at many firms.  Researchers are closely examining the results).  One extension of this ongoing public discussion is the concept floated for a minimum payment to those displaced or unable to find work in the new normal of “employment.”

We suggest that you check out the flow of related commentary on the topic of “the workplace” from the McKinsey & Company’s Global Institute at: https://www.mckinsey.com/mgi/overview

The Top Story this week from CNBC explores the CEO pay ratio dialogue and provides highlights within industries for you (manufacturing, retail trade, etc.).

The overall public dialogue on “inequality” (steadily rising in tempo and fervor) includes the subset of executive compensation and the CEO pay ratio is becoming a part of the discussion.  The news, commentary and research results to come in the months ahead will be of interest to investors, employees and other stakeholders.

Top Stories

Companies with closer CEO pay ratios may generate higher profit per worker
(Monday – May 14, 2018) Source: CNBC – A CNBC analysis of CEO pay ratios suggests that companies with more equal pay distribution also tend to generate higher profit per worker.

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The “100 Best Corporate Citizens 2018” Roster -– Published by CR Magazine

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by Hank Boerner – Chair, G&A Institute

Now in its 19th year, the well known CR Magazine “100 Best Corporate Citizens 2018” list was just unveiled; this effort recognizes the ESG performance of public companies in the United States. (The publication is now titled Corporate Responsibility Magazine, published by 3BL Media LLC.)

Top Companies:
Microsoft (MSFT) earned top ranking (#1), followed by Accenture, Owens Corning, Intel, and Hasbro (at #5).

The next five ranked companies are (#6) Altria Group, Cisco Systems, Ecolab, Johnson & Johnson, and NVIDIA Corp (at #10).

The biggest gainers for the year were Becton, Dickenson; IBM; Owens Corning; and Biogen.  The complete list is available in our Top Story (below).

Assembling the list does not rely on responding to a survey, publisher Dave Armon explains.  Each year the rankings measure the success of the “Brands Taking Stands” movement by celebrating the most successful, most transparent companies that report on their responsible practices. “We congratulate the company on the 2018 list for their commitment to corporate responsibility,” he said in announcing the rankings.

Methodology:
The list examines 260 data points of performance measures and disclosure, harvested from publicly-available information for every company in the Russell 1000® Index, in seven categories (environmental, climate change, employee relations, human rights, corporate governance, financial, and philanthropy & community support).  The underlying research is conducted by ISS Corporate Solutions (Institutional Shareholder Services).

The inaugural list was published in 1999 by the former Business Ethics Magazine, which segued into CR Magazine.

Coming up soon, CR Magazine in collaboration with the 3BL Association (formerly the Corporate Responsibility Association), presents the well known annual COMMIT!Forum conference, now re-branded as the 2018 3BL Forum by its new owners.

This year’s event is at MGM National Harbor near Washington DC, October 23-25; the theme is “Brands Taking Stands – The Long View”.

3BL Media LLC is the global leader in disseminating CR and sustainability content. Its brands include Triple Pundit; CSR Wire; 3BL Wire; 3BL Report Alert; Justmeans, 3BL Studio, and others. Corporate clients utilize the platforms for their sustainability, CR and related content distribution, communications and campaigns.

G&A Institute has collaborated with the 3BL Media staff and Corporate Responsibility Magazine on a long-term basis.  3BL content is carried daily on G&A’s news and opinion web-based distribution platforms.

The details for the “100 Most are in the Top Story:

Top Stories

Corporate Responsibility Magazine Announces 2018 100 Best Corporate Citizens
(Wednesday – May 09, 2018) Associated Profiles : CSRwire Source: CSR Wire — Corporate Responsibility Magazine (CR Magazine) announced today its 19th annual 100 Best Corporate Citizens list, recognizing the standout environmental, social and governance (ESG) performance of…

Are We Making Progress? Considering Recent News About “Apparel Fashion and Sustainability” — and the Investor Initiative to Help Make East Asian Factory Workers Safer and Better Paid…

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by Hank Boerner – Chair, G&A Institute

In monitoring the growing abundance of news stories and commentary about “supply chain,” “globalization” or “trade” topics and issues, our editors often see the focus is on apparel, clothing, textiles, fashion, and related topics & issues.

Companies in the developed economies widely source apparel footwear and related items in the developing and under-developed nations – and what happens there can quickly make news that travels around the globe.

Example:  The focus five years ago about this time was on the East Asian nation of Bangladesh and the Rana Plaza vertical factory tragedy in the capital city of Dhaka (or Dacca) that killed more than 1,000 garment industry workers.  The labels of leading western nation marketers were scattered about the debris and ashes — and those familiar brand images as well as images of the collapsed building and details of the tragedy helped to focus attention on worker conditions in the East Asian region in both North America and Europe.

The Interfaith Center on Corporate Responsibility (ICCR) investor coalition is keeping the focus on worker safety as the “Bangladesh Accord on Fire and Safety” is renewed for another three years.

ICCR institutions and their investor allies organized as “The Bangladesh Investor Initiative” (with collective AUM of US$4.5 trillion) on the 5th anniversary are urging a stronger corporate response and demonstrated commitment to local worker safety and adequate wage levels.  The link to our blog commentary on recent developments and background information for companies and investors is below.

Some good news to share is that sustainability is catching on in the fashion industry.  The uber fashion magazine from publishers Conde Nast – Vogue, with more than one million readers — just published a story about the embrace of “eco-friendly” fashion, spotlighting “the best designers of a new generation are stitching sustainability into everything they do…”

“While sustainability has long been considered a “byword for hemp-heavy bohemia,” writer Olivia Singer explains, “a new generation of designers is building brands with a more conscious approach to fashion at their core.”

Fabrics are sourced through collectives in India empowering female weavers as just one example.  In the article designers explain why sustainability is important to their brands (Richard Malone, Le Kilt, Elliss, E.L.V. Denim, Alyx, Marine Serre, Richard Quinn are featured interviews).

A number of creative approaches being adopted by the designers is explained — just think about the contribution to global sustainability of turning recycled plastics and viscose into yarn and fringing, using organic cotton as well as recycled polyester for “new” fashions, creating ECONYL from fishnets to make swimwear, and using recycled cotton and plastics as part of the effort of making sustainability a “pillar of luxury”.

The encouraging details are in our Top Story this week – a cautionary note:  some of the fashion photos are edgy and might offend.

Top Stories

The Young Designers Pioneering A Sustainable Fashion Revolution
(Thursday – April 26, 2018) Source: Vogue – While eco-friendly fashion has never had particularly glamorous connotations, the best designers of a new generation are stitching sustainability into everything they do.

And of interest, our own related content on G&A’s Sustainability Update Blog:  The Bangladesh Garment Factory Workers Tragedy and Investor and Corporate Response Five Years On…