There’s a provision in Jean-Pascal Tricoire’s compensation deal that sets him apart from most chief executive officers: the more Schneider Electric SE cuts carbon emissions, the bigger his paycheck.
About 12 percent of Tricoire’s 5.62 million euro ($6 million) package for 2014 was based on a number of sustainability metrics, including one directly tied to how successful the French manufacturer was in meeting its goal to reduce emissions from transportation, according to its annual report. “The whole mission of the company,” Tricoire said on a February earnings call, “is geared and directed to making this planet and the world we live in more sustainable.”
Not many have the same attitude. While dozens of the world’s largest companies signed pledges urging “the world’s leaders to reach an ambitious climate deal” at the United Nations Conference on Climate Change that started Monday, and vowed to reduce their businesses’ environmental impact, only a handful put CEO pay on the line. Of the 89 publicly traded signers of three compacts as of Nov. 13—the American Business Act on Climate Pledge, the Oil and Gas Climate Initiative and the CEO Climate Leaders pact—13 have tied sustainability efforts to a specific portion of their CEO’s compensation, according to a Bloomberg analysis.
Sustainability Agendas
Make-more-by-cutting programs can be effective for boards that want to put teeth into sustainability agendas and respond to pressure from investors, governments and consumers to consider their companies’ environmental footprints, said Conrad Pramboeck, head of compensation consulting at executive search firm Pedersen & Partners. It’s not a complicated calculus, he said. “Because money is a motivator for many top executives, they become interested in pushing this issue forward.”
At Schneider, part of Tricoire’s incentive compensation has been linked to sustainability efforts, including environmental and employee-related goals, since at least 2011. Filings don’t specify how greenhouse gas reduction alone has impacted the size of his total pay packages.
In addition to Schneider, the group of businesses with CEO pay linked to green goals includes insurer Allianz SE and appliance-maker Royal Philips NV, along with petroleum companies Statoil ASA and Total SA, filings show.
Alcoa Inc., one of few U.S. signers with a specific part of its CEO compensation based on sustainability efforts, associates 5 percent of chief executive Klaus Kleinfeld’s annual bonus to carbon dioxide emission reduction. That yielded him $151,200 last year, less than 1 percent of his $18.2 million reported compensation.
Other U.S. companies, including PepsiCo Inc. and Coca-Cola Co., list sustainability-related goals in their CEO pay programs without assigning them specific weights, filings show. Most, among them AT&T Inc., Starbucks Corp. and Wal-Mart Stores Inc., have environmental or sustainability programs in place but don’t connect CEO compensation to how well they perform.
“The tone from the top does say a lot about how seriously these issues are taken,” said John Wilson, head of corporate governance, engagement and research at Cornerstone Capital Group, an investment adviser with $800 million under management.
Spokesmen for Alcoa, AT&T, Philips, Schneider and Wal-Mart declined to comment. The other companies didn’t respond to calls and e-mails seeking comment.
Consistency, Comparability
U.S. companies aren’t required to report specific sustainability matters unless they’re considered material; Coca- Cola, for example, said in its annual report that failure to implement programs focused on environmental sustainability in agriculture could hurt its access to food products. But some European jurisdictions have put non-financial reporting mandates into law.
Businesses listed on exchanges in the U.K. have disclosed total greenhouse gas emissions annually since 2013, and starting in 2017, about 6,000 companies in the European Union will be required to report non-financial information, such as risks stemming from climate change. This will “enhance the consistency and comparability” of public filings, according to the directive.
“What gets measured gets managed,” said Bess Joffe, head of corporate governance at TIAA-CREF, the provider of insurance and retirement products for teachers with more than $800 billion under management. “Making sure that companies are tying compensation to metrics that are material to their business and their strategy is important, whether it’s environmental, social or governance.”