Aug 19, 2021 - Economy & Business

More CEOs get paid to do better

Briefcases
Illustration: Shoshana Gordon/Axios

A rush of companies say they are putting their money where their mouth is. From McDonald's to Wells Fargo, a record number of big businesses say how they fare on a slew of goals — like diversity — will impact part of CEO pay.

Why it matters: It's kicked into high gear in the past year, as companies try to signal they are serious about their role in improving society.

The backdrop: Corporations are set to face pressure to disclose more about their workforce — as a tweet from SEC chair Gary Gensler reminds us.

Where it stands: About 100 S&P 500 companies link a portion of short-term incentives for CEOs (think annual cash bonuses) to environmental, social and governance metrics, according to ISS Corporate Solutions. That's up from roughly 68 in 2020.

  • Nearly three-fourths of those metrics are around the workforce, including diversity and inclusion.

What to watch: Some payouts are pegged to goals with long time horizons — like putting more women on boards by 2030 or cutting carbon emissions by 2050.

  • But it can be unclear to the public what near-term progress is necessary to trigger annual payouts, says Jun Frank of ISS.

What they're saying: "Too often when companies do this, it's a very small percentage of CEO annual pay. And it can become a reward for something they would do anyway," says Rosanna Landis Weaver, who tracks governance and compensation at investor advocacy group As You Sow.

  • And details around how these goals are set — and whether they go far enough to fix the issue — are often unclear.

The intrigue: It's not just top executives. Banker bonuses in Europe are increasingly being pegged to how firms are "contributing to a ... better society," Bloomberg reported today.

  • But bonuses will "partly rely on a variable that’s harder to quantify than profit, which might make it easier to game."
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