In-Depth Report: Linking Compensation to Sustainability
Why are public companies facing shareholder proposals on how they link executive compensation to sustainability?
Executive compensation has been one of the most hotly debated topics among companies and investors. From regulation requiring U.S. companies to provide investors with advisory “Say-on-Pay” votes, the “two strike” rules in Australia, and a new voting regime across Europe under the Shareholder Rights Directive II, the influence of shareholders on executive compensation matters has dramatically increased on a global basis. Many investors are utilizing this enhanced power to push for executive pay programs that incentivize management to focus on long-term, sustainable corporate growth rather than rewarding short-termism.
The current movement to integrate sustainability-related compensation metrics into incentive plans stems from a belief that companies promoting sustainable business practices often outperform those that do not. A growing number of high-profile controversies across a range of industries and regions highlight the potential implications of failing to appropriately identify, manage, and mitigate a company’s exposure to environmental, social, and ethical risks.
In recent years, the highest proportion of compensation-related proposals have dealt with tying executive pay to environmental or social factors. This proxy season, boards and management will once again be asked to address how their incentive structures support long-term sustainability. Investors will be asked to vote — and will need to understand the issues involved. Glass Lewis’ newly updated Linking Compensation to Sustainability report provides crucial context, from an overview of market practice to background research and industry trends. The report is part of Glass Lewis’ “In-Depth” series, a growing library of ESG-focused literature that illuminates the topics at the top of the agenda for investors and public companies.
In-Depth: Linking Compensation to Sustainability is available now. Glass Lewis customers can access the report on Viewpoint via the Help & Resources menu, or Governance Hub, or contact their Glass Lewis Representative for more information.
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