As Congress prepares to vote on financial reform, lawmakers are scrutinizing executive compensation. In fact, a portion of the Senate's legislation proposes delegating approval of executive compensation to shareholders. Setting aside whether or not one agrees with that principle, one aspect of the rule should raise some important questions. It only calls for shareholders to take into account a company's financial performance when assessing its leaders' pay.
That's it?
In April alone, Washington pushed for multiple kinds of regulation and legislation aimed at improving safety and environmental records of US industry. Yet -- when drafting laws to radically change incentives, overhauling how our industry heads are paid -- Congress fails to identify either of these metrics as justification for pay. What message would that send?
Fortunately, the C-suites and shareholders of many American companies already recognize the value of protecting workers and the environment.
According to the latest figures, the US has seen an 8% decrease in work related fatalities between 2007 and 2008. This is in part due to increasingly strategic efforts by companies to provide workers with the latest information and safety protocols, and the best available safety equipment. There are many factors driving this. One high-profile example: "the board of Transocean Ltd., owner of the drilling rig where 11 workers died last month, eliminated executive bonuses last year over concerns about the company's safety practices," according to the Wall Street Journal.
Obviously, their concerns were well-founded. Ensuring a safe work environment is a business savvy move - and failing to do so can be catastrophic, far beyond the bounds of the company. Setting aside the social and environmental costs, workplace injuries will cost Americans $128 billion this year, according to a study by the American Society of Safety Engineers. Indirect costs of injury can exceed initial compensation by as much as 20 times, resulting from the costs of training and paying replacement workers, repairing damaged property, and investigating the accident, among numerous other factors. Add to that the costs of pending OSHA violations, and the PR maelstrom and public loss of confidence that follows closely behind well covered accidents. As such, workplace safety positively affects individual employees, companies, and shareholders.
Environmental stewardship carries similar business benefits. Energy efficient buildings and workspaces improve health, performance, and job satisfaction as well. Replacing resource-wasting 20th century practices - from paper consumption to business travel - with information and communications technologies drive down costs and carbon footprint. Large businesses can save millions by digitalizing records, while simultaneously cutting demand for paper and the labor costs of shuffling it. These tactics also offer a silver lining of helping present a positive image to the public. Other companies are taking the idea of going 'green' even further.
To be clear, we are not talking about simply turning out the lights at night.
Energy companies have invested substantial amounts into research and development of low- and no-carbon energy sources, while simultaneously working to reduce emissions from traditional fuels. Many wholesalers and food distributors have broken down and then restructured their supply chain operations in order to provide a more eco-friendly way to serve consumers. In some cases, companies have reinvested millions to lower their carbon footprint and drive out waste.
Yet the financial reform bill does not advise shareholders to weigh these when considering executive pay.
This is not to suggest that profit is not also important. Only healthy businesses have the capacity to invest in cleaner, safer, and more eco-friendly jobs and products. Smart business leaders industries generate profit and meet the needs of workers and the world.
If Congress intends to weigh in on the issue of executive compensation, they need to emphasize more than just financial incentives. Focusing solely on profits ignores the underlying reason this issue even came under government consideration. There are many aspects that make up a productive company, as well as a productive CEO, and failingly to recognize this fact would be a step backward.
Bill Shireman, President and CEO of the Future 500, has successfully advocated environmental causes for 30 years, and now brings business and activists together to develop collaborative solutions to economic, social, and environmental challenges.