The Advisors' Blog

Last week, Liz blogged on TheCorporateCounsel.net about BlackRock’s 2022 engagement priorities. BlackRock Investment Stewardship also published their approach to engaging with companies on compensation that would help maximize long-term shareholder value. BIS noted that “appropriate and transparent compensation policies are a focus in many of BIS’ engagements,” and they want to see companies clearly connect the dots between compensation and long-term financial performance. This includes disclosing how short- and long-term incentive plans work together to lead to long-term value.

BIS also observed that sustainability-related criteria continue to rise in popularity in incentive plans – here’s an excerpt of what they want to see & what they anticipate seeing:

BIS does not have a strong view on the use of sustainability-related performance criteria, but believes that where companies choose to include them, they are best aligned with shareholders’ interests when they: 1) address issues that are material to a company’s business model; 2) are aligned with long-term strategic priorities; and 3) incorporate the same rigor as with other financial or operational targets. It is helpful when companies integrating sustainability-related criteria in their incentive plans clearly explain the connection between what is being measured and rewarded and the company’s strategic priorities. Not doing so may leave companies vulnerable to reputational risks and/or undermine their sustainability efforts…

As companies navigate the global energy transition, we anticipate more incentive plans will include relevant greenhouse gas emissions reduction targets or transition-related metrics. Appropriate use of financial and other metrics aligned with long-term climate risk management – as well as investment in clean energy and product innovation – are increasingly important as companies look to position their business models to transition over time to a net zero economy.

In their memo, BIS also stated a preference for engaging with the relevant directors regarding compensation policies or outcomes – so companies should take that into account during the engagement planning stage. In addition, BIS prefers to engage on proposed compensation policies and plans “in final, or near final, stages” – backed by rationale on how the plans tie to long-term value creation, so companies should consider putting BlackRock later in their engagement schedule.

– Emily Sacks-Wilner