Outcome: Successfully withdrawn following the company’s commitment to disclose sustainability linkage to annual executive performance and incentive compensation reviews in its 2016 proxy statement.
RESOLVED: Shareholders request the Board Compensation Committee prepare a report, at reasonable expense and excluding proprietary information, assessing the feasibility of integrating sustainability metrics into the performance measures of senior executives under the Company’s compensation incentive plans, including disclosure of the metrics and annual results. Sustainability is defined as how environmental and social considerations, and related financial impacts, are integrated into corporate strategy over the long term.
Numerous studies suggest companies that integrate environmental, social and governance factors into their business strategy reduce reputational, legal and regulatory risks and improve long-term performance. We believe sustainability should be a key metric by which executives are judged.
Linking sustainability metrics to executive compensation could reduce risks related to sustainability underperformance; incent employees to meet sustainability goals and achieve resultant benefits; and increase accountability.
Examples of sustainability metrics might include: greenhouse gas emissions measurements, the amount of toxic materials utilized in operations or production, or water consumption per unit of product output.
According to the largest study of CEOs on sustainability to date (CEO Study on Sustainability 2013, UN Global Compact and Accenture):
o 76 percent believe embedding sustainability into core business will drive revenue growth and new opportunities.
o 93 percent regard sustainability as key to success.
o 86 percent believe sustainability should be integrated into compensation discussions, and 67 percent report they already do.
PPG states that its “vision is to be the world’s leading coatings company by consistently delivering high-quality, innovative and sustainable solutions that customers trust to protect and beautify their products and surroundings… Our executive compensation program is a key factor in promoting this strategy and a crucial tool in aligning the interests of our senior leadership with those of our shareholders.”
Yet, the Company’s long-term incentive compensation scheme does not reflect metrics for “sustainable solutions”.
In contrast, DSM, a chemical and engineered materials company based in the Netherlands identifies sustainability as a core value and has established links between sustainability metrics and executive compensation. In 2010, the company integrated sustainability into the long-term incentive portion of variable remuneration. Metrics include percentage of product launches that meet ECO+ criteria, including low toxicity criteria, energy efficiency improvements and employee engagement.
The Glass Lewis report Greening the Green 2014: Linking Executive Pay to Sustainability, finds a “mounting body of research showing that firms that operate in a more responsible manner may perform better financially…. Moreover, these companies were also more likely to tie top executive incentives to sustainability metrics.”
A 2012 report by the United Nations Principles for Responsible Investment and the UN Global Compact found “the inclusion of appropriate Environmental, Social and Governance (ESG) issues within executive management goals and incentive schemes can be an important factor in the creation and protection of long-term shareholder value.”
Adopting this proposal may mitigate risks associated with unaccountable CEO and executive pay and encourage more sustainable operations. The proponents encourage all shareholders to vote in support.