Monitoring Desk
BOSTON/LONDON: The havoc wrought by the coronavirus crisis could give investors leverage to put new limits on CEO pay packages and link them more closely to a range of social and environmental issues at companies’ annual meetings this spring.
Executive compensation is among issues expected to dominate AGMs around the world, many to be held virtually via video-conferencing, as management and shareholders weigh the impact of the pandemic on their businesses.
Even before the economic shock, many companies were linking executives’ paychecks to new measures. Now there is more political and reputational risk; bumper pay packages for CEOs, who at the top level can earn hundreds of times more than average workers, could prove a sensitive issue for companies at a time when thousands of people are dying, health systems are buckling and millions of people are losing their jobs.
“There is a massive corporate reckoning coming,” said Todd Sirras, managing director of US consultancy Semler Brossy which advise companies on executive pay.
AGMs are key dates for companies, when directors seek shareholders’ blessing for compensation, board lineups and other matters.
Even before the so-called proxy season gets underway, more than 30 major companies have responded to the dire economic situation by cutting executive pay, among them planemaker Boeing Co (BA.N), Qantas Airways (QAN.AX) and hotel group Marriott International (MAR.O).
In theory, the economic shock from the pandemic could deflect attention from non-financial matters this year, especially as more annual meetings will be held virtually, which could diminish activists’ influence.
Nonetheless, heading into the 2020 proxy season, a consensus was already emerging among boards and investors that better management of so-called environmental, social and governance-related (ESG) risks would lead to more sustainable profits.
In a study of roughly 4,800 North American and European companies with some type of pay incentive, roughly 11% included an environmental or social metric for the 2018 financial year, voted on at meetings held in 2019, according to leading investor advisory firm Institutional Shareholder Services.
Brett Miller, head of data solutions for ISS ESG, the responsible investment arm of ISS, estimates the figure could reach 25% for the financial year 2019 and rise even further as boards add new targets as a result of the pandemic.
Also at a time of extreme volatility in markets, directors may embrace ESG targets as something over which executives have more control, Miller said.
“When management is willing to put their compensation at risk over this, it’s going to be a focus,” he added. (Reuters)
