Linking Pay to Social Performance
Shareholder resolutions on executive compensation are one of most contentious issues companies face. This is largely in response to Section 162(m) of the Internal Revenue Code. It places a ceiling of $1 million that companies can deduct from the income of its top five executives – unless payments meet certain conditions. One of those conditions is if shareholders approve performance-based compensation. As a result, many companies now link executive pay to performance criteria.
Companies increasingly link executive pay to social criteria such as diversity, customer satisfaction and employee satisfaction, and environmental performance.
Almost two-thirds of 106 S&P 500 manufacturing companies say that environmental performance is a factor in senior executive pay. Three-quarters of the 106 companies include it as a factor in operating manager compensation. Companies include Alcoa, Black & Decker, Cinergy, Dow Chemical, FPL Group, Hasbro, Millipore, Phillips Petroleum, Raytheon and Conoco. The Investor Responsibility Research Center’s Environmental Information Service conducted the survey in 2000.
“Linking Executive Pay to Social Performance” is a new report by Business for Social Responsibility. [sorry this link is no longer available]. Click on Global Business Responsibility Resource Center. Then click on Governance and Accountability.
“Mild” Corporate Greening in Europe
A survey of Europe’s largest companies’ corporate environmental management policies finds that “progress is sound but slow.” Royal NIVRA, a Dutch professional accountants’ organization conducted the 2000 survey, “Prudently Protecting Profits? The (Mild) Greening of Global Corporate Management.”
They found that companies excel in monitoring internal environmental performance, but fall short when it comes to communication with stakeholders and publishing verified environmental reports. Royal NIVRA concludes, “corporate environmental management issues continue to be seen in very traditional internal business management terms, rather than from a holistic, organisation-society perspective.”
The difference in scores is much more apparent between industry sectors than between countries. Industries with the highest scores are processing, chemicals, utilities, mechanical engineering and metallurgy. The sectors with the lowest scores are contracting and construction, and retail and leisure. Yet, the highest scoring company overall – Otto Versand of Germany, one of the world’ s largest mail order companies – is in the retail and leisure sector.
The next nine highest scoring companies, in descending order, are:
* British Energy: UK’s largest electricity generator, operating eight nuclear power plants
* Bayer (Germany): one of the world’ s largest chemicals and health care groups
* BAT Industries (UK): now called British American Tobacco
* Volkswagen (Germany): Europe’ s largest automobile manufacturer
* Portucel Industrial (Portugal): leading European pulp and paper producer
* National Power plc (UK): a leading utility
* SKF Group (Sweden): a leading manufacturer in the bearing industry
* Gullspng Group (Sweden): a leading electricity producer
* Yorkshire Electricity Group PLC (UK): an energy distribution company
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Corporate Environmental and Sustainability Reporting Forum
American Electric Power, General Motors, Novo Nordisk, and the Vanderbilt Center have launched this new listserve for Corporate Sustainability Reporting. It’s for people who are interested in state-of-the-art communication methods for corporate environmental, sustainability, or social responsibility performance. To join, go to [sorry this link is no longer available] and click on Env_Reporting_Forum.
WBCSD Report: Sustainability Through the Market: Seven Keys to Success
A new report authored by Chad Holliday, DuPont CEO and current Chairman of the World Business Council for Sustainable Development, and John Pepper, Chairman of Procter & Gamble, makes the case that the best route to sustainability is through the open market.
Sustainability is a growth opportunity when eco-efficiency, social responsibility and financial returns are treated as interdependent items that drive strategy, says the report. The authors point out that previous arguments on the subject focus mostly on reducing waste and consumption. But pursuing sustainable development can benefit business in two ways – by generating top line growth through innovation and new markets, and by driving cost efficiencies.
The report details a seven step process necessary to integrate and benefit from sustainability, and includes case studies that put dollar figures on the successful efforts of companies who have done so. Some of the companies profiled are Cargill, Sony, ABB, DuPont and Procter & Gamble.
“There are currently 2.8 billion people around the world living on $2 a day or less,” states Chad Holliday. “This is a staggering figure. Such poverty means that half the world’s population has little or no access to the market and little hope to improve their lives. We simply must address the needs of the developing world, or sustainability will be impossible. The market is the best way to do this.”
All of the following seven keys are necessary for sustainability – none is sufficient alone.
KEY 1: Innovate. Companies can grow in ways that reflect world values.
KEY 2: Practice eco-efficiency. Create better products/ services while reducing resource use, waste and pollution along the entire value chain.
KEY 3: Move from stakeholder dialogues to partnerships for progress.
KEY 4: Provide and inform customer choice. Informed people make better purchasing decisions.
KEY 5: Improve market framework conditions. Legislation, regulations and enforcement must foster fair, transparent accounting and root out perverse subsidies.
KEY 6: Establish the worth of Earth. Establish more accurate price levels and promote more efficient consumption by using triple bottom line accounting.
KEY 7: Make the market work for everyone. Unmet basic needs represent significant market opportunities for innovative businesses. Poverty is the largest barrier to achieving sustainability through the market.
This “enlightened self-interest” is not just about building new markets. WBCSD points out that “If prominent business players do not address these issues, there will be pressure for command-and-control structures to limit consumer choice and therefore significantly limit opportunities for business to innovate and grow. The threat of such a possibility should not be taken lightly.”
[sorry this link is no longer available] report.pdf. Beware: it’s a large (7.7 MB) file.
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