Governance, Board Engagement
Index
Notable News
Corporate Governance, Incentives, Compensation Action
Research & Tools
Governance & Board Composition & Engagement
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Notable News
Corporate Governance, Incentives & Compensation Action
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DEUTSCHE BANK — Updated its Long-Term Incentive plan for senior executives (Management Board members), combining the bank’s strategic sustainability targets (such as decarbonization) in an ESG component, starting in 2024. This makes up about 20% of total variable compensation, as detailed in the bank’s newest annual report. (March 2024)
PUMA — Announced the company will invite four young environmental activists from Europe and the U.S. to provide insight over the next year on how the brand can improve its sustainability practices and communicate sustainability “in a way that makes sense to and engages with the next generation.” Included in this “Voices of a RE:GENERATION” project is a UK-based storyteller, a U.S.-based upcycler, a Germany-based healthy living vlogger, and a France-based visual artist. (April 2023)
CHIPOTLE — Announced its 2023 ESG goals tied to executive compensation: including purchasing at least 37.5 million pounds (17 million kg) of local produce; instituting composting programs in at least 23% more restaurants (up from the current 1,000); and improving retention of its diverse U.S. based restaurant support center and field operation positions. Achievement of these goals can positively or negatively affect officers’ bonuses by up to 15%. (March 2023)
ROYAL BANK OF CANADA (RBC) — Announced that in 2023 it will add climate objectives to the CEO and group executives’ mid-term and long-term incentive plans. As RBC notes in its 2022 Climate Report, this will serve as “an additional incentive for the CEO and GE to accelerate RBC’s progress on these key priorities through innovation and engaging with governments, businesses and individuals to facilitate meaningful global progress towards net-zero over the short, medium and long term.” (March 2023)
AXA INVESTMENT MANAGERS — Announced it will include ESG targets in the remuneration of its senior executives. The ESG metrics to be used include: weighted average carbon intensity to reach the target of a 25% reduction in corporate portfolio carbon intensity by 2025; a reduction of the corporate CO2 footprint (with an interim target of 26% reduction by 2025); and alignment of 50% of the real estate portfolio to be aligned with Carbon Risk Real Estate Monitor (CRREM) trajectories by 2025. (Feb 2023)
NORDEA — Financial services company Nordea announced it will introduce ESG targets for the first time as part of its Long Term Incentive Plan for the CEO and senior company leaders for the 2023-2025 period. Assessment of performance will be based on total shareholder return, cumulative adjusted earnings per share, and the company’s ESG scorecard, including sustainable financing, net-zero committed assets under management, and gender balance. (Feb 2023)
HEWLETT PACKARD ENTERPRISE — Accelerated its commitment to net zero across its entire value chain (Scopes 1–3) by 2040, ten years ahead of its original commitment. The goal is backed by SBTi-approved 2030 targets to reduce Scope 1 and Scope 2 emissions by 70% and Scope 3 emissions by 42% (2020 baseline for both targets). By 2040 the company also plans to reduce its entire global footprint by 90%. HPE has introduced two new initiatives that will drive progress toward these targets and commitments at the leadership level (June 2022):
- In 2022, all company leaders at the VP level and higher will complete a mandatory climate training program, which the company hopes will empower them to create action/impact plans within their respective purviews.
- A new compensation metric for the company’s Executive Committee that ties a portion of variable pay to HPE’s management of carbon emissions across its value chain.
WENDY’S —
Will base up to 15% of executives’ incentive compensation, effective this year,
on performance against the company’s ESG goals
defined in the Food, People, and Footprint focus areas of its
Good Done Right corporate responsibility platform. (May 2022)
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MASTERCARD (CEF MEMBER) — Announced that bonuses for all employees, not just for executives, would be determined by the company’s “performance on three ESG priorities: carbon neutrality, financial inclusion and gender pay parity.” It also expanded the scope of its Priceless Planet Coalition, adding 15 new restoration areas across six continents with the goal of restoring 100 million trees by 2025. (April 2022)
CHIPOTLE — Announced that its 2022 ESG goals will be tied to executive compensation, with the potential to positively or negatively impact officers' annual incentive bonus by up to 15%. (Feb 2022)
SALESFORCE — Announced that sustainability is now its fifth core value and it is tying executive pay to ESG performance, with measures this fiscal year focused on equality and sustainability. (Feb 2022)
List of Corporate Governance, Incentives and Compensation Action, 2021 (PDF)
Pay Parity Action
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MCDONALD’S — Reached gender pay equity for US corporate store employees, with plans to close the gap at its corporate offices and international markets next year. (Oct 2021)
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L’ORÉAL —
Announced it
became the first company in the world to receive the new EDGEplus certification from
EDGE (Economic Dividends for Gender Equality), which it claims is the only global assessment methodology and business certification for gender and intersectional equity.
L'Oréal created an internal pay-assessment tool based on EDGE methodology to consistently measure pay equity in its global workforce, with the results indicating it exceeded the EDGE standard for pay equity on the organizational level. (Aug 2021)
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PINTEREST — Achieved pay equity across gender and race in the U.S. and made about $1 million in adjustments to employees’ compensation in 2020. (May 2021)
HP Inc.— Announced new 2030 goals to drive a more diverse, equitable, and inclusive technology industry, including (May 2021):
- Achieving gender parity in leadership by 2030
- Achieving 50/50 gender equality in HP leadership by 2030
- Achieving over 30% representation of women in technical and engineering roles by 2030
- Meeting or exceeding labor market representation for racial/ethnic minorities in the U.S. by 2030
- Maintaining a 90%+ rating on its internal inclusion index for all employee demographics annually
- Reaching 1 million workers through worker empowerment programs by 2030
IRON MOUNTAIN — The information management company announced new sustainability goals across 3 pillars (May 2021):
- Protecting our planet: Reduce Scope 1 and 2 emissions 50% by 2025, achieve 90% renewable electricity by 2025, and use 100% clean electricity for its data centers by 2040
- Empowering our people: Extend gender pay parity across global operations and reduce the pay gap to 5% by 2025, increase representation of women in global leadership to at least 40% and 30% for people who identify as BIPOC by 2025.
- Strengthening our communities: Contribute 100,000 hours of employee volunteer time in local communities
PRINCIPAL FINANCIAL GROUP — Announced new ESG commitments, including reducing its US carbon emissions 40% by 2035 with intention to achieve net-zero carbon emissions by 2050. Additional commitments include aligning responsible investment practices with 7 UN SDGs by 2022, doubling the number of diverse small to midsize businesses it supports over the next 5 years, and performing regular diversity and pay equity analysis. (April 2021)
MASTERCARD — Announced plans to link executive compensation (EVPs and above) to ESG initiatives and three global ESG priorities: carbon neutrality, financial inclusion, and gender pay parity. (March 2021)
VF Corporation announced new programs and actions to advance racial equity, including (February 2021):
- Achieving 25% Black, Indigenous, and People of Color representation within its Director and above population by 2030
- Applying Mansfield Rules, requiring initial candidate slates to contain at least 50 percent diverse candidates (defined as women, BIPOC, LGBTQ+ individuals, and individuals with disabilities) when hiring or promoting candidates
- Assessing and resolving any identified pay gaps for employees, sponsored athletes, and influencers across the organization through a pay equity analysis by 2024
- Tying financial bonuses for Directors and above to racial equity goals and strategies
- Establishing a supplier diversity program to double its spend with minority- and women-owned businesses by 2025
McDonald’s committed to achieving gender parity in leadership roles (Senior Director or above) by the end of 2030 and will incorporate its diversity, equity, and inclusion performance into compensation for its Executive Vice Presidents. It announced interim 2025 goals to increase the percentage of women (from 37% to 45%) and historically underrepresented groups (from 29% to 35%) in leadership roles. (February 2021)
Research & Tools
Governance & Board Composition & Engagement
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How can boards convert sustainability from a wish to a winning reality? (EY) — This fourth annual edition of EY Europe Long-Term Value and Corporate Governance Survey examines the role of boards in accelerating sustainability as a central business imperative, drawing on the views of 200 corporate directors and executives. It finds three areas where boards can take a leading position (March 2024):
- Challenge management to embed sustainability into business strategy, demanding an ambitious strategic vision from management teams.
- Demand a more ambitious and strategic approach to the policy and regulatory agenda, moving beyond compliance and identifying where the company can find a strategic advantage over competition.
PwC’s 2023 Annual Corporate Directors Survey (PwC) — Surveys 619 directors from public companies in the U.S. across more than 12 industries. Key findings:
- While 51% of directors say they are prepared to oversee mandatory ESG disclosure, only 54% see the link between ESG and company strategy (down from 64% in 2021).
- Female directors were more likely to see ESG issues as linked to company strategy (67% vs. 51%) and having a financial impact on company performance (61% vs. 35%).
- 37% of directors said their board does not understand climate risk/strategy very well or at all. And 48% of directors said their boards have discussed climate change in the past 12 months, down from 51% in 2022.
- 96% of directors also said they were confident their board could guide the company through a crisis, yet 48% said their boards have not created a formal crisis management escalation policy.
- 82% said that diversity enhances board performance, however 55% said that board diversity efforts were driven by political correctness and 30% said this results in nominating unqualified candidates. Only 73% of male directors saw gender diversity as important (down from 90% in 2016).
Diversity of new board of director appointments declined from 72% in 2021 and 2022 to 67% in 2023, according to a new survey by SpencerStuart. The appointment of women stayed the same as 2022 at 46%, while directors who self-identify as underrepresented minorities dropped from 46% in 2022 to 36% in 2023. 20% of survey respondents (chairs of nominating/governance committees) said their boards were prioritizing recruitment of women and underrepresented minorities. 56% put board composition as a top priority; followed by adding financial expertise (38%); and adding an active or retired CEO or COO (25%). (Aug 2023)
Climate Vista (WTW) — This new engagement tool by global advisory company WTW is designed to help company boards and senior management to set an aligned, strategic response to climate risks and opportunities. The tool includes a board session with climate experts tailored to a company’s board, knowledge about climate science, and different climate risks, as well as guidance on setting a strategic company response. (July 2023)
Sustainability in the spotlight: Has ESG lost momentum in the boardroom? (Diligent Institute and SpecerStuart) — Seeks to understand how rapidly the financial and ESG climate has changed over the past year. This survey of 992 board members finds (July 2023):
- While 56% of Europe-based companies view ESG issues in terms of opportunities, in the U.S. only 30% do.
- 34% of U.S. based companies see ESG issues in terms of risks, while only 13% of Europe-based companies do.
- 49% of directors said the full board oversees ESG (up from 20% in 2019).
- 60% say their board is taking extra care to ensure that their ESG strategy is adequately reflected in annual reports/filings.
- 89% of directors say the full board evaluates ESG-related goals and strategies at least once a year.
- And 30% say their board has changed oversight structures around environmental or social issues in the last year (with 27% of those creating a new committee and 19% formalizing oversight in governance).
75% of board members agree that a coherent ESG strategy with clear priorities helps create sustainable organizational value and stronger financial outcomes, according to a new survey of 349 board members from 44 countries by consulting firm WTW and the Nasdaq Center for Board Excellence. According to respondents, ESG priorities were primarily shaped by: alignment with business strategy (85%); ethical reasons (78%); long-term value creation opportunities (74%); Business reputation among stakeholders (73%); and risk mitigation and regulatory compliance (both 71%). However, 40% of board members do not think their board has dedicated sufficient time and resources to governance in the context of their ESG priorities and agenda. And 48% acknowledge they lack skills and expertise for addressing climate issues. (July 2023)
In its 2022 Annual Corporate Directors Survey, PwC found that of the 704 public company directors surveyed, only two-thirds say their boards understand climate risk/strategy, and just 56% think their boards understand the company’s carbon emissions. 90% of directors say their board understands both the company’s diversity and inclusion efforts, and their cybersecurity policies and practices. 96% of directors also said their board has done something in the past two years regarding board diversity. (Oct 2022)
Banks with more gender-diverse boards provide less credit to more environmentally harmful companies, according to research by the European Central Bank. Specifically, banks with more than 37% female directors displayed 10% lower lending volumes to firms in the last quartile of pollution intensity. The research also found that this effect is stronger in countries with more female climate-oriented politicians. (Oct 2022)
54% of FTSE 100 companies now have a board-level ESG committee, according to research by Mattison Public Relations. Of the 54 FTSE companies, all oil & gas and mining companies have an ESG committee, while only 13% of companies in the non-bank financial services sector have a committee. In a similar analysis of the S&P 500 in 2020-21 by Deloitte, only 13% of companies had an ESG/sustainability committee, while 7% indicated that the full board had primary ESG responsibility. (Sept 2022)
Board Toolkit
(Chapter Zero) — Lays out
five steps that boards can take to ensure their businesses have a “holistic, robust and deliverable plan for reducing their emissions, responding to the opportunities of the net zero transition, and to the need for adaptation”: 1) Ensure the right board oversight; 2) Establish the need for change; 3) Set direction and plan the change; 4) Embed and sustain the change; and 5) Monitor and optimize. The tool was developed by UK-based nonprofit Chapter Zero, in collaboration with The Berkeley Partnership and the Centre for Climate Engagement at the University of Cambridge. (July 2022)
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Women in the Boardroom: A Global Perspective (Deloitte Global Boardroom Program, in collaboration with The 30% Club) — Analyzes the boardroom gender diversity of nearly 10,500 companies in 72 countries and identifies political, social, and legislative trends. Key findings (Feb 2022):
- Only 6.7% of board chairs and 5% of CEOs are women.
- A global average of 19.7% board seats are held by women, up 2.8 percentage points since 2018. At this rate, “something near parity” could be reached around 2045—seven years earlier than the previous report’s findings.
- Companies with women CEOs have significantly more female representation on their boards than those with male CEOs: 33.5% vs. 19.4%, respectively.
List of Governance & Board Composition & Engagement, 2021-2019 (PDF)
Incentives & Compensation
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Global Report on ESG Metrics in Incentive Plans 2023 (WTW) — This assessment of 1,152 global company disclosures finds that 81% of executive compensation incentive plans now incorporate at least one ESG metric, up from 75% in 2022. Other key findings (Feb 2024):
- In the U.S. 76% of plans include ESG metrics (up from 69% in 2022) while in Europe it’s 93% (up from 90%).
- In Europe, 80% of companies include at least one environmental and climate metric in their executive incentive plans. While lower in the U.S., the amount almost quadrupled over the past three years from 12% to 44%.
- The median weighting of ESG metrics is 20% in Europe, the U.S., and Asia Pacific, and 25% in Canada.
- The gap between sectors in adopting ESG metrics has narrowed this year.
76% of S&P 500 companies reported in this year’s proxies that they incorporated at least one ESG metric in their executive incentive plans, an increase from 52% three years ago, according to a new study by WTW. Metrics related to human capital are most popular, used by 70% of S&P 500 companies. Environmental metrics rose to 44%, from just 12% in the U.S. three years ago. In Europe, ESG metrics within executive incentive plans rose to 93% (from 90% last year) and in Asia to 77% (from 63%). (Jan 2024)
50% of CEOs and their executive teams have compensation tied to sustainability goals, up from 15% a year ago, according to an IBM Institute for Business Value survey of 3,000 CEOs across 24 industries. This survey also found that environmental sustainability was identified as CEOs’ top challenge over the next three years (42%), with cybersecurity/data privacy second (32%). However, environmental sustainability fell to fifth place as an organizational priority, from third place the previous year. CEOs also reported that while 76% use operational data and 75% use financial data to make decisions, only 34% use ESG data. (July 2023)
Textiles Compensation: The Sustainability-Pay Disconnect (Planet Tracker) — 57% of textile companies do not tie ESG performance with executive compensation (compared to 70% of the wider S&P 500), based on this analysis of the 30 largest textile brands. Of the 43% of companies that do, the majority fail to set clearly disclosed quantitative annual targets. Only two companies, Adidas and Puma, had clear annual sustainability-linked objectives and reporting for executive pay programs. The report calls on shareholders (the top 20 of which hold $278 billion of private finance in the industry) to push for: performance-linked pay that is substantial (>10%); independently verified and quantitative targets that are independent of profitability targets; and clear disclosure of what’s been achieved not just targeted. (May 2023)
Paying for Net Zero (PwC and the Leadership Institute at London Business School) — 78% of 50 of the largest European listed companies now link executive pay outcomes to carbon targets, according to a new analysis of STOXX Europe 50 companies. Payouts in carbon targets disclosed in 2022 averaged at 86%, and over half paid out at 100%. Carbon targets were assessed against four criteria: significant, measurable, transparent, and demonstrably linked to long-term carbon reduction goals, with only one company’s carbon pay measures meeting all four criteria. The report also shows that the bigger carbon emitters are more likely to put carbon measures in executive pay, suggesting focused investor engagement is having an impact. (March 2023)
More large public companies incorporated ESG metrics into executive compensation plans in 2022, according to a new report by global advisory firm WTW. The report found that 77% of the 885 companies in the US, Europe, UK, and Canada it examined utilized at least one ESG metric in incentive plans in 2022, up from 68% in 2021. The inclusion of an Environmental metric and a Diversity, Equity, and Inclusion metric both nearly doubled over 2021, going from 22% to 40% and 22% to 45%, respectively. (Jan 2023)
Pay for Climate Performance: Linking CEO Compensation to Emissions Reduction (As You Sow) — Analyzes the quality of executive climate-informed compensation plans of 47 large U.S. companies. Of those assessed, 89% received a D or F grade as their compensation plans failed to include measurable, quantitative incentives or climate-informed incentives of any kind. The report also found the amount of pay tied to climate metrics was often negligible relative to the overall pay package. (Oct 2022)
Adoption of ESG metrics for executive incentive plans across the S&P 500 has grown to 70%—up from 57% the previous year, according to the Harvard Law School Forum on Corporate Governance. Consideration of Diversity & Inclusion grew from 28% to a 46% prevalence, and carbon footprint reporting grew from 5% to a 16% prevalence, a 320% rise, the largest increase among all ESG metrics. D&I saw the second largest growth. (Aug 2022)
58% of FTSE 100 companies link ESG measures to executive pay, and almost 60% have ESG measures in their executive incentive plans—up from 45% last year, according to a PwC analysis. (Nov 2021)
Women board members of FTSE 100 companies are paid 40% less than their male counterparts, according to New Street Consulting Group data. (Aug 2021)
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Corporate diversity is the most common kind of sustainability metric used to set executive pay, according to an Equilar study. Among 61 metrics Fortune 100 companies used to tie executive pay to ESG factors, 14 (23%) were diversity metrics. (Aug 2021)
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Linking executive pay to ESG goals (PwC) — Reviews the state of ESG-linked executive compensation and examines 4 key dimensions that remuneration committees should be aware of: (1) internal and external targets, (2) how to keep track of and measure progress toward those goals, (3) what time frames to use, and (4) how to determine success. (June 2021)
Paying Well by Paying for Good (PwC and The Centre for Corporate Governance at London Business School) —
Identifies the underlying reasons why a company may (or may not) include ESG in executive pay and the consequences for measure selection. Sets out the principles and decisions required to design a good, effective and enduring ESG pay metric. (April 2021)
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45% of U.K. companies listed on the FTSE 100 index incorporate some form of ESG measures into executive pay, according to PWC. (March 2021)
“2019 EHS & Sustainability Salary Report” (NAEM) provides an update on salaries of full-time environmental, health, safety and sustainability (EHS&S) professionals at private and public companies. Key findings included the following:
- 44% of EHS&S professionals surveyed earn more than $100,000 annually.
- Corporate directors and managers are earning 7% more on average than they did in 2017.
- Professionals with 11-15 years of experience are earning 6% more in 2019, compared to 2017 levels.
- 66% of professionals surveyed are eligible for additional annual cash incentive bonuses.