Although sustainability performance appears to be a logical extension of the traditional performance-based compensation model, the effect and result of such performance remains unclear and untested across the market. The adoption of broad-based sustainability performance measures may be dangerous because, often times, these measures are tailored to the corporation and may decrease total shareholder return in the short run. Regardless of whether or not the corporation decides to introduce these measures, their effect on total shareholder return and other corporate interests requires an individualized analysis.
Part II of this Comment discusses the current state of executive compensation, including the use of peer group benchmarking in establishing executive pay and the use of performance-based compensation. This overview will describe the characteristics of a peer group and considerations that compensation consultants evaluate before they select peer groups. Part II also discusses how performance-based compensation became prominent, the basic reasoning for performance-based compensation, and other tax related reasons for adopting performance-based compensation under Section 162(m) of the Internal Revenue Code.
Part III, the primary purpose of this Comment, examines sustainability in corporate America. Specifically, this section defines “sustainability” and “sustainability performance measures,” and discusses how corporations currently embrace sustainability through an industry sample featuring three uniquely situated corporations. Finally, Part III concludes by examining the primary concern with embracing sustainability performance measures: accurate measurement.
Part IV engages in a broad-based examination of corporate social responsibility concerns that must be vetted before introducing corporate sustainability measures. This section examines the Shareholder Primacy View, as advocated by prominent free-market economist Milton Friedman, and the Triple Bottom Line approach. This section concludes by reviewing the emerging theory of the Sustainability Model of Corporate Social Responsibility. Part V offers concluding reflections on the individualized considerations that must be discussed before introducing sustainability performance measures into a corporation’s executive compensation plan.
"Green" Performance: The Future of Performance-Based Executive Compensation?,
San Diego Journal of Climate & Energy Law.
Available at: http://digital.sandiego.edu/jcel/vol6/iss1/9