47 Largest Carbon-Emitting Companies Fail to Incentivize CEO Pay Based on Climate Performance

Shareholder representative As You Sow has released “Pay for Climate Performance: Linking CEO Compensation to Emissions Reduction” report finding that, while many companies say they link CEO pay to climate reduction goals, such incentives generally lack meaningful metrics or sufficient compensation to incentivize climate progress.

The report grades 47 of the largest carbon-emitting companies in the U.S. on their use of CEO climate-related pay incentives, and the quality of such incentives. The report found a notable lack of measurable incentives across these companies. A whopping 89% of the assessed companies received D or F grades for failing to include a quantitative or any type of climate-related incentive. Where climate-related compensation ties were claimed, most were negligible, non-quantitative, and lacked specific climate-related pay incentives.

“Climate metrics included in CEO pay can either incentivize timely progress on emissions reduction or can be another form of company greenwashing,” said lead author Melissa Walton, executive compensation and Say on Climate associate at As You Sow. “This report allows investors to understand the difference between the two. Of the companies that did link CEO pay to a climate-related metric, we generally found the metric to be formulated in such a way as to not adequately incentivize emissions reduction performance.” 

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 relevant emissions sources in the long-term incentive package. Xcel Energy earned the highest score, a “B”, for linking CEO pay to quantitative emissions reduction performance.

“It is not enough to develop science-based emissions reduction efforts and net zero by 2050 goals,” said David Shugar, Say on Climate initiative manager at As You Sow. “Companies should also properly incentivize leadership to accomplish these goals, through clear metrics based on actual emissions reductions aligned with 1.5° C.”

Investors need to pay particular attention to the amount of pay associated with climate metrics and if these metrics are included in long-term incentive plans, which often represent the majority of the pay package. To incentive emission reductions, climate metrics should constitute a motivating, and well-defined portion of CEO pay. The report found the amount of pay tied to climate metrics was often negligible relative to the overall pay package.

“Many executive compensation plans are complicated and confusing,” said Rosanna Landis Weaver, wage justice and executive pay program senior manager at As You Sow. “It takes a thorough understanding of both executive compensation and climate change to evaluate these pay metrics. This report is intended to help investors understand best practices in incentivizing the attainment of strong climate goals.”

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