ESG activists see executive pay as tool for raising standards
Activists pushing for big business to take climate change, diversity and human rights more seriously have found a new tool: boardroom bonuses.
As executive pay surges past its pre-pandemic levels, they are seeking to tie bonuses to environmental or social goals. Chief executive pay at the 500 largest US companies by revenue hit a median of $14.2mn last year, according to pay consultancy Equilar, sharply ahead of the $12.3mn in 2019. Spending on private jets for executives also hit a 10-year high in 2021.
Bonuses in these pay packages are typically linked to total shareholder return — meaning that, when the investing public benefits from a company’s rising share price, so do executives through higher payouts. But, as activists seek to push companies to cut emissions and improve diversity, they are zeroing in on executives’ wallets.
In Japan, investors challenged two companies to link pay to carbon reduction.
At JFE Holdings, Japan’s second-largest steel producer, the management agreed to tie pay to climate progress before the issue went to a vote. “Remuneration-climate linkage is an increasingly important marker of credibility in company plans,” notes Jason Mitchell, head of responsible investment research at JFE investor Man Group, which engaged with the company on climate concerns.
A second tussle on pay and climate at J-Power — involving Man Group and two other shareholders in the electric utility — was less successful, though. In this case, the company was less co-operative with investors and the pay petition secured only 19 per cent support from shareholders at a vote in June.
Investors have launched similar campaigns in the US.
A shareholder proposal at General Motors called on the company to link pay with climate targets, but the petition drew only 16 per cent support from shareholders in 2021. However, investors scored a win at Valero Energy, a fuel refining and retail company, which agreed to make pay changes based on climate without a shareholder vote.
AllianceBernstein has been one of the most forceful asset managers in demanding rigorous ESG pay metrics, says Brian Bueno, ESG leader at Farient Advisers, a pay consultancy. “[They were] one of the ones that stood out as actually encouraging the use of ESG measures,” he says. Others “took a softer approach”.
While climate concerns tend to be the dominant ESG factor, investors also say they want companies to tie pay to workplace diversity.
This story originally appeared on: Financial Times - Author:Patrick Temple-West
