As the conversation about the role of ESG in corporate performance evolves, Wachtell, Lipton, Rosen & Katz's 2020 Compensation Committee Guide notes the it would be prudent for compensation committee members to consider that driving profit maximization may not be the sole focus of future compensation arrangements. Interestingly, the Guide makes the case that as a broader stakeholder analysis becomes a more “mainstream” concern for investors and consumers, “[c]ompanies that give balanced consideration to the needs of all constituencies will be best positioned to achieve sustainable long-term growth.” Effectively, the Guide highlights that a considered ESG strategy is part of the overall long-term profit growth strategy.
The Guide goes in-depth on shareholder proposals, executive compensation litigation, say-on-pay votes, and the influence of proxy advisory firms. Wachtell Lipton has substantial experience with the proxy advisory sector and Subscribers may find the breakdown of ISS and Glass Lewis compensation and pay-for-performance policies especially useful. The Guide points out that “[i]ncorporating ESG-related goals may not fall squarely within current ISS and other proxy advisor frameworks for evaluating a given company’s compensation program.” As such, any efforts to do so may require shareholder engagement and a willingness to highlight disagreements with proxy advisors.
Additionally, the guide presents in-depth looks at two proposed rules under Dodd-Frank: pay versus performance (page 49) and compensation clawbacks (page 51).