According to ISS Corporate Solutions, the peak of the 2022 U.S. corporate annual meeting season will occur tomorrow, May 19th, with 119 annual meetings scheduled. May is always the busiest month of the traditional proxy season, with almost 40% of the Russell 3000 holding their Annual Meeting of Shareholders at some point during the month. For example, today, May 18th, there are 115 annual meetings slated to take place, so it’s going to be a busy week.
This certainly is reflected in my work schedule over the past couple of months, as March and the first part of April was an especially busy time for drafting and reviewing the executive compensation sections of proxy statements. Things have quieted down somewhat recently as we work on the disclosures for companies with end of March fiscal year ends, but it will begin to pick up again in a few weeks as we reach mid-year and the companies with end of June fiscal year ends begin to prepare for their annual meetings this fall.
With that as the backdrop, I have been continuing to leaf through the proxy statements filed this spring and have seen a real increase in environmental, social and governance disclosure — in both proxy statements generally and in Compensation Discussion and Analyses. Let me give you a couple of examples.
Werner Enterprises, Inc. filed its definitive proxy statement at the beginning of April and for the second consecutive year included an extensive Proxy Summary in its materials. What’s most notable is that, along with the customary sections summarizing its business and executive compensation highlights, it also devotes an entire section to ESG:
At Werner, we are proud of the strong foundation of driving greater sustainability and inclusion throughout the over 65 years of our organization. As an award-winning EPA SmartWay Transportation Partner, Werner eliminated over 300 million gallons in fuel consumption, improved fuel efficiency by over 29% and reduced over 3.3 million tons of CO2 since 2007. Werner is proud of its highly-skilled and safety-conscious driver workforce. Our female driver workforce is well over the national average, and approximately half of our driver associates are ethnically diverse. Werner was also honored to be the only trucking company recognized as a 2021 Military Friendly® Company by VIQTORY Media. It is the fifth consecutive year Werner has received this designation. We are widely recognized as a transportation leader in military hiring with veterans and veteran spouses. Werner’s talented Board of Directors has strong business experience, relevant leadership skills and increasing diversity among its membership. Seven of our eight directors are independent and four of our eight directors are gender or ethnically diverse.
In October 2020, we launched a codified approach to sustainability organization-wide and unveiled key ESG milestones. As an important part of the Social component of ESG, we added “Inclusion” to our core values and adopted a Diversity, Equity and Inclusion (“DEI”) vision statement. Our ESG strategy will continue to evolve through five key themes:
(i) Establish a formalized ESG framework and strategy.
(ii) Identify meaningful, reportable metrics and goals to monitor, measure and report on our ESG performance and progress.
(iii) Build on our strong foundation as an industry leader focused on reducing our environmental impact and carbon footprint through a young, innovative and modern truck and trailer fleet.
(iv) Foster and empower an inclusive culture that upholds our core values and provides equal opportunities for all.
(v) Continue to uphold transparency, ethics and integrity in our governance practices with an emphasis on creating a more diverse Board with complementary skills that align with our long-term strategy.
Our recent accomplishments under our ESG program include:
Environmental
- Launched WernerBlue, our branded Sustainability endeavor
- Earned SmartWay Excellence award from the EPA for the 5th consecutive year and eight of the last nine years
- Purchased a battery diesel hybrid vehicle and initiated purchase of 10 battery electric vehicle (BEV) trucks
Social
- Created eight associate resource groups (“ARG”) in 2021
- Added WEbelieve ARG in March 2022; Abled & Disabled Partnering Together (ADAPT) ARG will launch in June 2022
- Participated in Commitment to Opportunity, Diversity and Equity (CODE) assessment focusing on inclusion, perspective, and company culture
Governance
- Established a stand-alone ESG Committee of our Board of Directors
- Created two new leadership positions: AVP of Sustainability and AVP of Diversity, Inclusion, and Learning
- Published inaugural Corporate Social Responsibility Report
- Gained endorsement by Sustainability Accounting Standards Board (SASB) as a reporter under its framework; also aligned with specific United Nations Sustainable Development Goals that support our values, strategy, and aspirations
As we further develop our ESG strategy, we will continue to advance these efforts, and others, and report on our progress in future Corporate Social Responsibility Reports to be available on our website.
As the company discloses, in 2021 it formed a new board committee dedicated to ESG matters. Here’s the description of the committee that’s in the proxy statement:
The Company formed an ESG Committee effective January 1, 2022. The primary functions of the ESG Committee are to: (i) support and oversee Company policies relating to relevant environmental, social, corporate social responsibility, sustainability, and public policy matters; (ii) work closely with other Board Committees, including the Nominating and Corporate Governance Committee in the development and oversight of corporate governance policies and the Audit Committee to ensure the Company has appropriate disclosure controls and procedures in place relating to ESG matters; and (iii) assist management in setting general strategy relating to ESG matters and provide oversight to the Company’s underlying ESG programs and policies. The ESG Committee makes policy, program and strategy recommendations to the Board concerning current and emerging ESG trends that may affect our business, operations, performance, or public image. Committee members also play an active role in the creation of our periodic Corporate Responsibility Report. A more complete description of the ESG Committee’s functions is provided in its charter.
While I haven’t seen too many separate committees devoted to ESG matters (in my experience, companies tend to parcel out the responsibilities among the board’s standing committees), they appear to be growing in popularity as ESG continues to become a more important area for companies and investors.
Trimble, Inc., the Sunnyvale, California-based technology company, has taken a slightly more expansive approach as reflected in its most recent definitive proxy statement, which was also filed last month. Trimble uses its Executive Overview to address its strategy for sustainability, which includes discussions of its ESG efforts as categorized in five distinct areas (or “Pillars”) — Solutions, People, Communities, Environment and Governance. It then shifts to brief discussions of of its overall diversity, equity and inclusion efforts under the heading of “Culture and People,” provides highlights of its corporate governance framework section (including the newly required Bard Diversity Matrix and a director skills and attributes table), lists each key compensation policies and practices, and finishes with a discussion of its stockholder engagement efforts, including changes in its compensation program resulting from investor feedback and the results of its most recent Say-on-Pay vote.
In contrast to Werner Enterprises, Trimble also addresses ESG matters in its Compensation Discussion and Analysis, as part of its discussion of its 2021 business highlights:
2021 continued to present many unique macro environmental challenges, including the continuation of a global pandemic, highly competitive labor markets, global economic volatility as well as heightening environmental and social justice concerns. As a Company, we recognize the importance of navigating talent and compensation programs and decisions during this unprecedented time and have been thoughtful to provide rewards that are in support of the Company’s business and talent strategy in the context of the environment we are operating in. Notably, the Company has taken deliberate actions to make a difference with employees, and communities, with the support of and oversight by the Compensation Committee, including:
- implementing new executive performance equity awards in 2022 that incentivize our management to achieve carbon emissions reductions and increase diversity in the workforce,
- improving the recruitment, retention, engagement and development of our diverse workforce, and strengthening our capability and insights around inclusion and demographic data, internally and externally,
- ensuring we offer competitive rewards, recognition and well-being programs that meet the diverse needs of our employees, and
- investing in our employees’ career growth by offering a wide range of development opportunities that promote learning and growth.
You’ll note that the company has added some ESG metrics to its current year executive performance awards, a subject to which it devotes more attention in the body of the CD&A (at Page 45):
Each year, the Compensation Committee reviews our incentive plans to ensure their alignment with our strategic and operational initiatives and to reflect feedback we receive from our shareholders. For 2022, the Compensation Committee introduced a quantitative, operational metrics-focused modifier to our PRSUs intended to further focus our executive officers on our multi-year goals related to sustainability and diversity, inclusion and belonging. These goals are generally designed to incentivize achievement of the following:
- Decrease our carbon emissions by a meaningful amount by the end of 2024 in line with long-term reduction goals; and
- Diversify our workforce, including, without limitation, by increasing female representation globally; and increasing representation in the U.S. of underrepresented black, indigenous and people of color (BIPOC) by the end of 2024.
The modifier could result in up to a 10% increase or decrease in the number of shares that pay out with respect to our Named Executive Officers’ PRSUs granted in 2022.
In previous years, the use of ESG-oriented performance measures had largely been limited to short-term incentive compensation plans; however, that’s changing — quickly. We’re starting to see these measures appear in long-term equity awards as well, even if only as a modifier. I expect that we’re going to see one or more ESG metrics as a regular component of most incentive compensation programs in the next couple of years.
— Mark Borges, CompensationStandards.com, May 18, 2022
