Last week, Clorox announced that it will tie executive pay to elements of strategic ESG goals – it’s the most recent of a few big-name companies to do so.
Whether these moves will improve outcomes and make investors happy is still a bit of an unknown. In the case of Clorox, the ESG goals include choosing “initiatives that foster total well-being – financial, physical, professional, social & spiritual – for employees and their families.” It’s a laudable goal and aligns with everyone’s focus on human capital management. But will we see granular proxy disclosure that the CEO missed out on a bonus because employees weren’t hitting the gym often enough? I kinda doubt it.
At any rate, it’ll be interesting to see how this area develops, as it seems to be gaining steam and using non-financial sustainability metrics in executive pay plans presents a lot of new challenges for measurement, internal & external communication, etc. A Semler Brossy memo outlines 5 ways to overcome the roadblocks. Here’s the 30,000-foot view:
Reexamine the context: Confirm that your company’s situation calls for express sustainability measures
Clarify the organizational scope: Determine which parts of the organization the incentives should apply to
Quantify the duration: Decide on the time horizon of your initiative, which will affect how your incentives are structured
Consider the means & the ends: Do the processes & behaviors used to achieve your ESG goals matter as much as, more than, or less than the results?
Structure the incentives: Integrate the relevant metrics & payouts in designing your plan
-Liz Dunshee, CompensationStandards.com October 10, 2019
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