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Stryker Corporation – Executive Compensation (2020)

Stryker Corporation – Executive Compensation (2020)

Outcome: Pending

Whereas: Stryker seeks to improve healthcare “by working with our customers to make the world better for patients, caregivers, employees and the environment.”

In 2019, Stryker’s CEO signed the Business Roundtable’s “Statement on the Purpose of a Corporation,” joining 180 chief executives who publicly commit to lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities, the environment and shareholders. To do so, we believe Stryker will require mechanisms that better align executive leadership incentives to goals that account for health impacts on the communities it serves and the environment.

Including sustainability metrics in executive compensation can create value for all stakeholders, and linking executive pay to performance across sustainability metrics (“CSR contracting”) improves firm value and increases social and environmental initiatives, according to a 2019 study.” Moreover, the paper finds that major companies are increasingly tying sustainability to incentive awards. For example, “While only 12 percent of S&P 500 companies had adopted CSR contracting by 2004, this ratio increased to 37 percent by 2013.” In surveying the S&P Global 1200, the Conference Board found a fivefold increase of companies implementing this practice.

Companies have introduced sustainability metrics into compensation philosophies and methodologies.

• At IDEXX Laboratories in 2019, the “preparation and publication of the Company’s first Corporate Responsibility Report” factored into the annual performance-based cash bonus award for top executives.
• At Thermo Fisher Scientific Inc. in 2019, 30 percent of executive short-term incentive awards were based on non-financial goals, including ‘customer allegiance’ and ‘workforce diversity.’
• Walmart Inc.’s, annual incentive awards are contingent on progress in implementing enhancements to its ethics and compliance program. 2019 objectives “covered various subject matters including anti-corruption, health and safety, food safety, environmental compliance, and licensing and permits.”
• Herman Miller Inc. states a “key objective[s] of our executive officer compensation program” is to “reinforce our commitment to our people, planet, and communities.”

Sustainability metrics relate to environmental and public health impacts, among other impacts on stakeholders, and are distinct and vitally important strategic issues for Stryker. In its 2019 proxy, Stryker selects specific compensation performance metrics to further the objectives of its strategic plan. Therefore, we believe the Board should consider incorporating specific sustainability metrics into executive compensation design, as evidence shows their inclusion would incentivize leadership to improve customer relations, reduce risk, enhance financial performance, and increase accountability. The 2019 proxy states, “The Board oversees strategic direction and priorities for the Company…and monitors the Company’s risk, performance and impact on its stakeholders, including environmental, social and governance (ESG) related matters…” making increased executive accountability for sustainability more imperative.

Resolved: Shareholders request the Board’s Compensation Committee publish a report (at reasonable expense, within a reasonable time, and omitting confidential or propriety information) assessing the feasibility of integrating specific sustainability metrics into Stryker’s executive compensation program.

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