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For the past 25 and more years, the focus of the sustainable & responsible investment (SRI) community has been on matters related to corporate compensation, usually a corporate governance concern, as well as additional concerns on a range of other issues and topic areas (in environmental, social/societal, and other categories). We’ll often see “executive compensation” in the media headlines when a corporate crisis occurs — often, the narrative will include descriptions of the underperformance of the company and the overly handsome compensation of the folks at the top of the pyramid — the C-suite. It’s a recurring theme. Exec Comp has been a concern (particularly for investors) for several decades now. In the late-1980s things began to change quite dramatically in “exec comp,” the salary plus a range of benefits allocated to the CEO and C-suite executives by the board of directors. The ratio of perhaps 100-1 (CEO pay to rank & file) began to soar to 300-to-1, 400-to-1, and even more. Today one expert sets the ratio at 373 times — CEO to blue collar worker in the firm. Reacting to public pressure, when the tax deductibility of the “cash” amount paid to the CEO was limited to just $1 million by the Congress of the United States in 1993. (Congress enacted Section 162 of the Internal Revenue Code to put the cap in place for senior management.) That, it was thought, would serve to rein in runaway CEO salaries. And would help to create a better balance between workforce salaries and the C-suite. And would create many more incentives for reward performance (stock grants, options, etc). And would serve the rank & file of the enterprise by lifting their salaries. Instead, we saw a takeoff, hockey-stick-style, of non-cash compensation to the senior management team. As a Harvard Law School Forum on Corporate Governance commentator (Michael Doran, University of Virginia) observed in his commentary in February — “More than two decades on, Section 162(m) has proven a spectacular policy failure.” A new wrinkle that makes a lot of sense: How about tying some exec comp to the company’s sustainability performance? This is explored by Seymour Burchman and Barry Sullivan, both compensation consultants, in the Harvard Business Review (our Top Story). They compare an analogous situation at an earlier time (the 1980s) when exec performance on improving “quality” in U.S. manufacturing firms began to be incorporated in considerations of compensation at the top. This helped to focus executive attention on the firm’s quality of initiatives and achievements (and linked that to compensation metrics). (Remember “Six-Sigma, Zero Defects” and other initiatives?) And so today, they suggest, it is time to do the same thing for corporate sustainability. This may not happen in the broad universe of public companies immediately, but over time, they argue, clearly articulated business cases and specific plans for improvement will help to add sustainability considerations to the comp discussions and negotiations. The reasons “why” are important and the authors spell these out. The concept is to avoid foggy, undefined goals and get to the details and well-defined sustainability metrics in the compensation discussions. There are more powerful arguments set out for you in our Top Story this week. This is a conversation that may gain significant traction as companies begin to trot out the required ratio between the CEO comp and the median pay level for the rest of the team members (the disclosures start in 2018 unless there are Federal policy changes). The earlier interesting February 2017 commentary by Professor Michael Doran is here: https://corpgov.law.harvard.edu/2017/03/03/uncapping-executive-pay/ Top Stories This Week… It’s Time to Tie Executive Compensation to Sustainability About Sustainability: Progress Is Being Made – We See Forward Momentum! New report outlines action for sustainable insurance 6 Management Best Practices For Sustainability In A Changing Market Shake Your Stakeholder: How Leading Firms Co-Create Sustainability Solutions Should Sustainable Investors Expect Worse Returns? Through many NGO voices, Packard Foundation pushing sustainability agenda in Japan Does ‘Sustainability’ Help The Environment Or Just Agriculture’s Public Image? A Carrot-and-Stick Approach to Long-Term Sustainability Today’s Farmers Are Trying To Achieve ‘Sustainability,’ But It’s Easier Said Than Done The Demand For Sustainability Has Trickled Down To Data Centers Sustainability in today’s business world Might Growth in Passive and Sustainability Investment Strategies Be Complementary? Our Focus This Week on A Range of ESG Topics & Issues — Things to Think About.. Diesel still needed to meet climate goals, Merkel says Source: OZY – Solar and wind combined account for barely a fifth of electricity generation defined as renewable. More than 70% comes from Hydropower… A tax on carbon could be the answer to corporate tax reform Court ruling could broaden U.S. government environmental impact studies Thirsty world must wake up to looming water crisis, expert says
News for You From the Corporate Sector -Both Positive & Negative Molson Coors Announces New Sustainability Goals, Aims for Zero Waste to Landfill by 2025 Eastman Issues 2017 Sustainability Report Cooper Tire releases 2016 Global Sustainability Report Schnitzer Announces Fiscal 2016 Sustainability Report Carnival Corporation Launches Sustainability Website, Releases 2016 Sustainability Report Wells Fargo Shakes Up Board After Second Scandal Reignites Criticism Costco owes Tiffany more than $19 million for selling counterfeit rings German green group to pursue diesel bans as agreed steps inadequate UBER SETTLES WITH FTC AGAIN, THIS TIME OVER 2014 PRIVACY BREACH Bayer-Backed Health Startup Medopad Raises Funds With UBS Hyundai plans long-range premium electric car in strategic shift News & Opinion: Asset Managers, US Pension Funds, Sovereign Wealth Funds CalPERS Flexes its Proxy Muscles Associated Profiles : Pula Fund Trump Administration News… Affecting Directions on Governance, Sustainability & Climate Change Trump disbands federal advisory panel on climate change: report New study finds that climate change costs will hit Trump country hardest U.S. lays groundwork for saving coal plants with grid report Energy and Environment Interior secretary recommends Trump alter at least three national monuments, including Bears Ears
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Time to Tie Exec Comp to Sustainability Performance? Some Folks Think It Is Time — and How to Do It
September 1, 2017
Stakeholder Engagement
