Fall 2021 Compensation Committee Chair Advisory Council Meeting Brief

In the fall of 2021, NACD, with Farient Advisors and Weil, Gotshal & Manges, brought together compensation committee chairs from Fortune 500 companies to discuss investors’ increasing demands for compensation committees to tie pay and performance metrics to climate goals.

Companies are still on a journey to figure out the best way to accomplish this, and many issues around this topic are still unresolved. Participants discussed integrating climate goals into the corporate strategy and tying pay to this, setting climate-related goals, tracking climate metrics, and the best board composition for accomplishing all of this.

DEMAND FOR CLIMATE GOALS IS GROWING

Organizations that have climate-related goals are a lot more common than it used to be, and the number of companies setting such goals continues to grow. “According to a study by Farient Advisors and their partners in the Global Governance and Executive Compensation Group (GECN), last year about 25 percent of companies had environmental metrics in their incentive plans. It’s up to 30 percent now,” said Robin Ferracone, founder and CEO, Farient Advisors. Additionally, although only certain industries, such as energy and utilities, used to track climate goals in the past, the range is now broadening to include financial services and technology among others.

“And the range will continue to grow, as both shareholders and management are very interested in it,” Ferracone added. “We are even seeing more mid-cap and small-cap companies starting to get in the game.” For this reason, tying pay incentives to climate goals is the next natural step, as doing so would hold companies accountable to meeting the goals. Investors have been making their desires in this area clear, as they are putting pressure on the US Securities and Exchange Commission (SEC) to require reporting on environmental, social, and governance (ESG) metrics.