Executive compensation ensation
and the planet Balancing
the books
Executives have traditionally been paid commensurate to one easy metric: how much value they bring to their company balance sheets. But with ESG an increasingly unavoidable part of corporate life, some corporations are now pegging C-suite pay to a range of sustainability metrics. However, with many ESG measurements remaining obscure, can tweaks to executive pay really help the planet? Phoebe Galbraith speaking to experts across the sector to investigate.
xecutive pay has completely transformed over the past 50 years. From comfortable salaries and beneficial pension options, to bonuses and stock options, executives have traditionally been compensated based on how much value they bring the company. The idea behind this is to encourage a longer-term view of the business – and, at the same time, to keep investors and shareholders happy. European and US executives are typically paid through a mix of options that make up their salary, which usually falls under $1m due to certain tax benefits this offers; and equity options and stock units that fall under performance-based pay, which offers another kind of tax benefit. The idea behind this, explains Cambria Allen, managing director and head of investor strategies at JUST Capital, is to tie executive performance with investor performance. Ultimately,
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Allen continues, the point is to incentivise driving returns for both the company and investors. These compensation packages, for their part, are all reported annually in a compensation committee report, which outlines the components of pay for anyone to see, and covering both short-term and long-term performance components.
As a result, compensation packages have traditionally been focused on meeting certain financial targets. “If an executive is going to be making a certain amount based on these finance numbers and that’s all they care about, they’re not going to be incentivised necessarily by their compensation plans to think long term,” explains Rosanna Weaver, director, wage justice and executive pay at As You Sow, a not-for-profit organisation focused on promoting environmental and social corporate responsibility.
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