August 19, 2020
Investor Interest in Tying ESG to Executive Compensation
– Lynn Jokela
We’ve blogged before about reports showing trends in tying ESG metrics to executive compensation and a recent Clermont Partners blog looks at shareholder proposal trends for insight into investor interest in tying ESG to executive compensation. And, it sounds like companies may want to start planning for how to enhance disclosure in next year’s proxy statement about E&S compensation metrics and how executives are compensated against E&S goals.
In analyzing shareholder proposal trends, the blog says investor’s want to see executive compensation tied to ESG metrics. The blog reports that the number of, and support for, ESG executive compensation shareholder proposals have increased and then it walks through some of the factors ESG ratings firms evaluate for executive compensation. Depending on which ratings firms company investors follow, the blog provides a helpful overview of ESG ratings in context of executive compensation. To get started, the blog suggests companies first define key performance indicators used to track and measure company-specific ESG goals and then clearly disclose these KPIs in ongoing investor communications.
In terms of potential E&S executive compensation proposals – within the “E” dimension, the blog says investors have cited poor performance on SASB-defined material ESG issues, requesting boards integrate ESG metrics into executive incentive programs. Within the “S” dimension, investor requests have largely centered around reporting on a company’s global median pay gap across gender, race or ethnicity or requesting compensation committees evaluate pay grades and/or salary ranges of all classifications of employees when setting CEO compensation targets.