Good Incentives: The Growth in Campaigns to Tie CEO Pay to ESG Performance

Transcription

1 Good Incentives: The Growth in Campaigns to Tie CEO Pay to ESG Performance Patrick McGurn (Moderator) Special Counsel, ISS Michelle de Cordova Director, Corporate Engagement & Public Policy, NEI Investments Bev Briscoe Director, Goldcorp Jennifer Coulson Senior Manager, ESG Integration, bcimc #RIACon17

2 Good Incentives The Growth in Campaigns to Tie CEO Pay to ESG Performance 2017 RIA Conference, June 1, 2017 ISS ISS-Ethix

3 Widespread Use of Performance Metrics Short-Term Metrics in the S&P 500 Long-Term Metrics in the S&P 500 Earnings TSR Other Earnings Revenue Returns Cash Flow 6 26 Revenue 7 18 Returns 5 15 Other 9 16 TSR 5 1 Cash Flow 5 11 Margin 5 2 Margin 4 2 Percentage of Companies Using Metric Percentage of Total Compensation Tied to Metric Percentage of Companies Using Metric Percentage of Total Compensation Tied to Metric Source: ISS Incentive Lab

4 S&P 500: Non-financial goals in short-term incentive plans For the S&P 500, ISS ExecComp Analytics database identifies 119 companies that are using nonfinancial or soft metrics in their short-term incentive (STI). The median weight of any individual soft metric in the program is relatively low at 8.3 percent, and the median total soft metric weight within the 119 companies is 15 percent. The most common non-financial metrics, by far, are: Strategic Objectives and Health/Safety. Some interesting examples include: Workforce diversity (Kellogg, Kimberly-Clark, Dominion Resources and WEC Energy Group); Leadership (Abbott, Lowes, Zions Bancorporation, Microsoft, Baker Hughes, Duke Energy); Talent/people development (Aetna, LabCorp, Zions, Devon Energy, and Edison), and Some are quirky ( Be Cimerex Energy).

5 S&P 500: Non-financial goals in short-term incentive plans Looking to E&S metrics, however, the numbers fall. Including employee safety as an E&S concern, there are 59 S&P 500 firms with E&S metrics in their STI programs. For example: Diversity goals Kimberly-Clark, Kellogg, Eversource Energy, AEP, Alliant Energy, Dominion Resources, and WEC Energy Group Arconic, for example, has goals for elevating minorities and women to executive and professional level positions both in the US and abroad. Note the high concentration in the energy industry in wake of UNPRI s focus on extractive industries. Other issues: Carbon reduction goal at Verizon, Water management goal at Newmont Mining, and Waste and Efficiency goal at Best Buy. Excluding employee safety goals, only 38 S&P 500 have E&S metrics in their STIs.

6 S&P 500: Non-financial goals in long-term incentive plans LTIs are a different story. ISS ExecComp Analytics database tracks only 15 S&P 500 companies with soft metrics in their LTI plans. There are only four clear examples of S&P 500 companies including E&S metrics in their LTI programs: FirstEnergy (Safety), Fiserv (Talent Development), NextEra Energy (Safety), and PG&E (Safety). Company Name FY Metric Advance Auto Parts, Inc Completion of Executive Leadership Team American Express Company 2016 Strategic Milestones BROWN FORMAN CORP 2015 Citizens Financial Group, Inc Strategic ConocoPhillips 2016 Strategic Plan FirstEnergy Corp Safety Fiserv, Inc Talent Development Ford Motor Company 2016 Strategic Goals KROGER CO 2015 Customer 1st Strategy Qualitative Strategic Initiatives as determined by the Committee KROGER CO 2015 Improvement in Associate Engagement Navient Corporation 2016 Strategic Objectives NextEra Energy, Inc OSHA Recordables PG&E Corp 2015 Safety Philip Morris International Inc Innovation Performance Factor Scripps Networks Interactive, Inc Succession Planning Activities Texas Instruments Incorporated 2016 Strategic Progress

7 Jump in Shareholder Proposals Linking E&S with Executive Pay # of Shareholder Proposals Support (% votes cast) Filed Voted Average Support Source: ISS Voting Analytics; 2017 vote results reflect year-to-date results

8 Shareholder Proposals: Submissions, Withdrawals & Support Year Filed/ Submitted Withdrawn Voted Average Support (% votes cast) Strongest Result Cabot Oil & Gas: 7.3% Caterpillar and Dominion Resources (tie): 7.1% Gilead Sciences: 2.5% Ameren: 8.1% Chipotle Mexican Grill: 23.3% (three results) Walgreens Boots Alliance: 23.1% Source: ISS Voting Analytics; 2017 vote results reflect year-to-date results

9 Sustainability Metrics: Walgreen Boots Alliance (2017) RESOLVED: Shareholders request the Board Compensation Committee prepare a report assessing the feasibility of integrating sustainability metrics into the performance measures of senior executives under the Company s compensation incentive plans. Sustainability is defined as how environmental and social considerations, and related financial impacts, are integrated into corporate strategy over the long term. 8

10 Promote 2 Scenarios: ConocoPhillips (2017) RESOLVED, that shareholders of ConocoPhillips ("ConocoPhillips") urge the Human Resources and Compensation Committee (the "Committee") to report annually to shareholders on the extent to which ConocoPhillips' incentive compensation programs for senior executives promote resilience to low-carbon scenarios associated with efforts to limit global temperature rises to below 2 degrees Celsius ("2 Scenarios"), including the ways in which those programs: Align performance measurement and vesting periods, on the one hand, and the time horizon of risk associated with investment decisions, on the other; Link the amount of incentive pay to the volume of fossil fuel production or exploration; Reward, or not penalize, consideration of demand reductions projected in 2 Scenarios when allocating capital, especially to projects with higher break-even prices; and Encourage the development of a low-carbon transition strategy. 9

11 Stranded Carbon Assets: Devon Energy (2017) BE IT RESOLVED: Shareholders request that Devon Energy issue a report that assesses, in light of global concerns about climate-change and the resultant pressures to transition to a low carbon economy, the benefits and risks of continuing to use oil and gas reserve additions as a metric in named executives compensation. The report should be produced at reasonable cost and omit propriety information. 10

12 Diversity: TJX Companies (2017) RESOLVED: Shareholders request that the Board s Compensation Committee, when setting CEO compensation, include metrics regarding diversity among senior executives as one of the performance measures for the CEO under the Company s annual and/or long-term incentive plans. For the purposes of this proposal, diversity is defined as gender, racial, and ethnic diversity. 11

13 QUESTIONS/THANK YOU Patrick McGurn Special Counsel ISS Institutional Shareholder Services

14 Good Incentives: The Growth in Campaigns to Tie CEO Pay to ESG Performance Patrick McGurn (Moderator) Special Counsel, ISS Michelle de Cordova Director, Corporate Engagement & Public Policy, NEI Investments Bev Briscoe Director, Goldcorp Jennifer Coulson Senior Manager, ESG Integration, bcimc #RIACon17