No more tears for Boohoo plc
Boohoo plc has become the latest listed company to tie its executive compensation agreements to specific ESG objectives. The company has linked 15% of the annual bonus paid to executives to its “Agenda for Change” initiative aimed at promoting ethical and sustainable work practices.
Adoption is crucial to Boohoo’s continued success. Last year alone, stories of unethical practices in their supply chain resulted in nearly a billion pounds being cut off of their stock’s value in a single week. In order to demonstrate its commitment to ESG, the company has linked its annual bonus to the new agenda. Boohoo said that while a direct link to goals has only been made to 15% of bonuses, its compensation committee will have the power to reduce the entire executive bonus if ESG progress is particularly weak. The compensation report will be voted on at this month’s general meeting, but it will likely be a welcome change for investors and shareholders.
If retailers are keen to demonstrate and underline their commitment to ESG, then the way forward would be to follow suit. While 45% of FTSE 100 companies have an ESG target in their annual bonus, long-term incentive, or both, an analysis of UK retailer compensation reports shows that few companies include ESG targets in their compensation. their leaders.
Luxury brand Burberry plc, however, said it plans to incorporate non-financial performance measures, including achievement of ESG targets for the group’s senior executives, while global entertainment company and retailer Walt Disney has revealed. that the 2021 annual bonus will put more emphasis on ESG metrics, with a focus on diversity and inclusion with the highest weighting among non-financial metrics.
Retailers considering linking ESG metrics to executive compensation will need to select the most important issues first, before considering using entry metrics that focus on a company’s stock (e.g. eg towards environmental initiatives, development of low-carbon technologies) or exit measures that represent an identifiable result (eg reduction of carbon emissions). It is clear that while production measures are preferred by investors, the value of production measures must also be seen as part of the overall strategy. The ESG indicators that a company decides to use should be transparent and easy to understand.
Boohoo plc’s announcement may be the start of a shift for retailers from traditional financial performance metrics to those that demonstrate a company’s commitment to ethical and sustainable values through executive compensation .