Australian companies have been slow to include ESG metrics in leaders’ incentive plans, but remuneration experts say that is changing.
The number of blue-chip companies inserting environmental hurdles into long-term bonus plans is set to at least double this year. That raises concerns that executives will be paid handsomely for achieving opaque targets with no tangible improvements in company performance.
From January, big financial institutions are required to give “material weight” to non-financial measures in the determination of each component of a person’s variable remuneration.“Banks are under pressure to transition their portfolios away from carbon polluters to renewable energy,” Robinson says. “They’re doing it, and you will see it this coming [annual general meeting] season in incentive arrangements.
Philip Foo of CGI Glass Lewis says the firm’s general approach is to support non-financial metrics in long-term incentive plans at the time they are introduced and judge their suitability when bonuses are eventually paid out. On the environmental front, linking bonuses to hurdles such as project milestones, even if the project will eventually lead to a reduction in carbon emissions, can be problematic.“Awarding bonuses on plans is really difficult,” Paatsch says. “It requires a lot of trust.”says she expected to see a far greater uptake of non-financial metrics in long-term incentive plans last year. That didn’t happen, underpinning mixed investor support for such pay arrangements.
In any case, says Paatsch, if companies have sound ESG practices, this will be reflected in share price performance over time. Although CGI Glass Lewis has urged investors to vote against AMP’s remuneration report, it concluded that a vote in favour of performance rights being granted to George was warranted.
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