Momentum builds to link CEO salaries with sustainable measures

There’s a growing trend in the mechanisms and measures used to determine corporate executive compensation. From increased attention to Environmental, Social and Corporate Governance (ESG) measures to “say on pay” votes, these changes have been driven by factors such as increased dialogue between management and shareholders as well as the financial crisis.

"Many companies are putting in more performance-based compensation plans and they are addressing items that shareholders often criticized, such as excessive severance, perks, federal income tax payments, and pensions,” SEC Commissioner Luis Aguilar said recently.

In these troubled financial times, it appears that the trend to increase executive accountability will only become more widespread. Millions of Americans have been laid off in the past five years to preserve corporate profitability and shareholder value, yet executive salaries have continued to rise with no end in sight. In 1980, the average S&P 500 company CEO received 42 times the average worker's pay, but in 2011 the rate was 380 times the average -- up 14 percent from the previous year.

Four hundred companies who received federal stimulus funds for troubled assets are required by the SEC to implement “say on pay” initiatives which require a shareholder vote on executive compensation at least once every three years. While dozens have started the process, hundreds more companies are scheduled to follow suit.

Intel, Alcoa, and Campbell’s Soup already employ executive evaluation measures which can include the company’s carbon footprint, employee morale, community impacts and cost savings through recycling.

And companies interested in receiving guidance on how they can identify appropriate ESG metrics, link them to executive compensation, and properly disclose such practices can now refer to a UN report issued this month about integrating ESG issues into executive pay.  

Photo of money in shirt pocket provided by Helder Almeida via Shutterstock

Next page: Say on pay