ISSN 2330-717X

CEOs Welcome Alignment Of Executive Pay To ESG-Related Criteria

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With stakeholder capitalism gaining traction, the push to closely align executive pay to a company’s performance on environmental, social and governance (ESG)-related criteria is gaining ground.

Pierre Habbard, General-Secretary, Trade Union Advisory Committee to the Organisation for Economic Co-operation and Development, said he welcomes the new Davos Manifesto to tie executive remuneration to corporate social responsibility. His constituents, he added, view the widening pay gap between bosses and workers as a social justice issue, which has undermined trust in business and contributed to rising income inequality.

He said the current model of aligning compensation to financial criteria can be manipulated by share buybacks, which burn a company’s cash for the short-term purpose of keeping up the share price.

Maha Eltobgy, Head of Shaping the Future of Investing at the World Economic Forum, said the alignment of executive pay to some ESG-related criteria was widely supported by chief executive officers who participated in yesterday’s International Business Council meeting in Davos to deliberate a set of metrics to help companies track performance against long-term priorities.

She said “the mood was positive”, and a large majority of the CEOs indicated that they would publish the metrics in their annual reports. Eltobgy cited Siemens as an example of a corporation that has already incorporated ESG-related criteria into its executive compensation package.

In addition to trade unions, investors are also expected to exert pressures on management in their attempts to limit potential liabilities relating to climate change, according to Katharina Pistor, the Edwin B. Parker Professor of Comparative Law at Columbia Law School.

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