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More Executive Pay Tied to Sustainability Performance

Leon Kaye | Monday November 1st, 2010 | 1 Comment

Performance goals have long been tied to executive pay.  Much of that is thanks to Wall Street, which sets revenue and growth expectations, and woe to the company that dares not meet them.  Sales figures obviously are paramount, as are various ratios like price/earnings, profit margins, and return on assets.

Now as companies strive to become even leaner, sustainability has become more important.  The latest trend in executive pay has seen company boards push executives to reduce their energy costs.  Sustainability, once seen as a fringe indulgence, has now become mainstream, as companies have seen the benefits of energy efficiency and waste reduction.

As Michael Meehan explained last week, sustainability has moved out of the token CSR office, into the C-suite and in the halls of the finance department.  Water efficiency and carbon emissions tracking have also found their way on the balance sheets, as companies want to demonstrate to their shareholders that they are reducing costs and mitigating risks.

Several reasons account for this trend.  The financial meltdown of two years ago has made many citizens in the USA, UK, and other countries even more jaded towards corporations and the banks with which they were cozy.  Outrage over golden parachutes, which to some seem have ballooned larger the worse that CEOs had performed, have added fuel to the fire.  Let’s just face one example in California: had Carly Fiorina not had such a polarizing tenure at HP, which ended with her firing by the company’s board, she would probably be far ahead in the polls in her race to unseat Senator Barbara Boxer. Fiorina’s record of lay-offs and severance package is just too toxic for many voters.

Now more shareholders and stakeholders are becoming more cognizant of their companies’ effects on people and the planet, and demand action that reaches beyond the glossy PDF report.  The old model that featured a company’s philanthropic foundation does not cut it now:  people want action, not altruism that often comes across as phony.  Add the US Securities and Exchange Commission’s guidance on how companies should articulate risks related to climate change, and a perfect storm has brewed.

Intel, Xcel Energy, and Shell are just a few of the companies that have tied sustainability performance to executive pay.  With that focus has come a growing carbon and energy management software industry, with companies like Enviance and Enablon becoming central to more company’s operations.  As their competitors buy in to this development, watch for more companies to monitor their sustainability performance–their customers, after all, are demanding it.

Ed note: signups for 3p’s GRI certification in sustainability reporting close Tuesday Nov. 2nd!


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  • http://www.therefinishingtouch.com/blog The Refinishing Touch

    It’s unfortunate that the market crash and resulting outrage was necessary for companies to realize it can’t just throw money at its executives. Hopefully now, with their livelihood at stake we’ll see progress with these companies and their ‘dedication’ to sustainability