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Corporate America wants you to know that it takes climate change seriously. But how can you tell if businesses will follow through? Here's one idea that's catching on: Cut the pay of corporate leaders if they don't meet their climate goals.
Top executives at big companies don't just receive a paycheck. Much of their compensation comes in the form of bonuses or stock options pegged to certain benchmarks.
Many companies already tie pay to nonfinancial metrics such as customer satisfaction or a good safety record, says Jannice Koors, a senior managing director at Pearl Meyer, which advises corporate boards on executive compensation packages.
But linking executive pay to cutting carbon emissions, or to diversity, equity, and inclusion efforts—both major areas of focus for investors today—is new territory.
"It's not very common—yet," Koors says. She says that mounting pressure from shareholders and the general public will likely cause that to change over time.
Still, some boards are balking. Say shareholders ask a board to tie 20% of an executive compensation package to environmental or social goals. The board might worry that would reduce the incentive to meet other business goals.
"What in the current bonus plan has suddenly become 20% less important?" Koors asks. "Have profits become 20% less important? Have revenues become 20% less important? That 20% has to come from somewhere."