Having your say
The subject of what other people get paid for their work is a topic we all seem to be fascinated with, especially when it involves our politicians or high-profile corporate CEO’s/Directors. Shareholders of public companies are having their say on remuneration issues to a greater extent than ever before. The most recent example in New Zealand saw shareholders of Contact Energy successfully blocking plans to increase Directors’ remuneration.
Whilst the link between financial performance and remuneration is well understood, success in social and environmental areas is now forming part of the process for determining reward structures. This move is part of the world-wide trend to consider all of a business’s stake-holders – owners, employees, product suppliers, customers and the community at large. In New Zealand, Dick Hubbard’s company is a widely recognised example of a private corporate that’s passionately involved in a whole range of measures to consider it’s stakeholders. Consumers of his breakfast cereal will have read the information sheets where Dick talks discusses his views. It’s also interesting to see how some well-known oversees corporates are becoming active in disclosing details of the way in which social and environmental success factors not only improve their bottom line but also impact on their payroll.
It has been common for many multi-nationals to be thought of as money-grubbing and entirely profit-motivated with no concern for their workforce, their community or their environment. But it is clear that, not only is this far from true in many cases, but lack of performance in these areas is hitting some CEO’s in the back pocket.
In a study last year of companies within the S and P 500 in the USA, some easily recognised companies that stated they used environmental performance criteria in determining executive compensation were on the list: Alcoa, Black & Decker, Cinergy, Dow Chemical, FPL Group, Hasbro, Millipore, Phillips Petroleum, Raytheon and Conoco.
Ignoring the need for diversity in the worforce is also perilous and has cost some companies dearly in court-determined compensation cases. Whether as a result of the “carrot” or “stick” approach, this is an element that’s also been concerning Aetna, Avon Products, Boeing, Chubb, Deloitte & Touche, R.R Donnelley, Dow Chemical, Du Pont, Hoechst Celanese, Intel, Tenneco and Marriott International.
Customer satisfaction is high on Eastman Kodak’s priority list when it comes to executive compensation. In 1995 this multi-national adopted a plan to measure the performance of about 800 management employees with respect to shareholder satisfaction, customer satisfaction and employee satisfaction/public responsibility. In 1997, Eastman Kodak's board declined to award any bonus to its CEO because of poor company results. In 1996, the board cut its CEO's bonus by 13 percent, in part because customer satisfaction was "below expectations." Eastman Kodak has performed well where enviromental issues are concerned too having won a gold medal from the World Environment Centre in 1999.
It seems that many shareholders are taking ownership of issues such as these and making their opinions known to Directors and CEO’s in no uncertain terms. Although uncomfortable for some, this is very positive for investment markets. The more confidence we have in our public companies to do well in every sense of the word the more we will be encouraged to invest in them.
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