As Companies Link CEO Pay to Climate Goals, Most Pay Plans Fail to Drive Necessary Emissions Reduction
Dow leads in new report with a Score of “B-”
FOR IMMEDIATE RELEASE
Media Contact: Sophia Wilson, swilson@asyousow.org, 341-600-1832
BERKELEY, CALIFORNIA—APRIL 23, 2024— Shareholder representative As You Sow today released its 2024 "Pay for Climate Performance: Linking CEO Compensation to Emissions Reduction" report, grading 100 of the largest U.S. companies on their CEO climate-related pay incentives and their ability to drive greenhouse gas emission reductions. The report finds that while pay incentives can be powerful motivators, they need to be quantifiable, significant, and linked to robust climate goals.
Of the 100 companies assessed, 88% received a grade of “D+” or lower. Thirty-four companies do not link CEO pay to any climate goals at all. Another 54 have climate incentives that lack meaningful metrics, or their pay component lacks sufficient compensation to incentivize climate progress. Hallmarks of such weak incentives include non-quantitative climate metrics linked to qualitative and/or non-significant pay criteria.
“Climate incentives are about getting practical in the boardroom and deciding that climate progress is fundamental to a company’s bottom line,” said Danielle Fugere, president of As You Sow. “Well-designed executive incentives are effective in driving results, but our report indicates that the relatively new practice of linking CEO pay to climate performance should be implemented carefully and watched closely by shareholders.”
Dow, Inc. earned the highest score of a “B-” for linking its CEO compensation to quantitative emissions goals within a long-term incentive plan, improving its score from a “C-” in 2022.
None of the assessed companies received an “A” grade, which requires linking CEO compensation to a 1.5°C-aligned emissions reduction target across all material emissions sources (Scope 1-3) in the long-term incentive package.
The report finds that, where climate-related compensation linkages do exist, they tend to be weak in three ways:
They are predominantly qualitative, leaving significant and unwarranted discretion to compensation committees;
They are non-transparent or overly complex quantitative climate metrics, which are difficult for CEOs to understand and apply and may give unwarranted discretion to compensation committees in awarding incentives; and
They can include insignificant metrics not captured in a company’s long-term incentive plan, which provides a substantial component of CEO pay incentives.
“Linking CEO pay to greenhouse gas emissions reduction targets is only as effective as the targets set by a company,” said Fugere.
The 100 companies scored here were also evaluated in As You Sow’s 2023 "Road to Zero Emissions" report. Only 7% of the 100 companies received an "A" grade for reducing their most significant sources of emissions in line with global 1.5°C goals. Together, the two reports provide a concerning picture of companies failing to set and meet robust Net Zero targets.
“Achieving Net Zero decarbonization is challenging for many companies, but we know that setting 1.5 degree-aligned targets and developing transition plans to achieve them are necessary building blocks for success,” said Abigail Paris, decarbonization project manager at As You Sow. “Executive incentives reward strategy execution, so linking well-designed CEO compensation to effective climate strategies will create competitive, sustainable companies that are well equipped to achieve success in a decarbonizing economy.”
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As You Sow is the nation’s leading shareholder representative, with a 30-year track record promoting environmental and social corporate responsibility while building company value. Its issue areas include climate change, ocean plastics, pesticides, racial justice, workplace diversity, and executive compensation. Click here for As You Sow’s shareholder resolution tracker.