Guest essay by Eric Worrall
The Institute for Policy Studies, a prominent Washington based think tank, has released a report which claims corporate pay structures which incentivise Chief Executive Officers to maximise shareholder value are accelerating climate change.
According to the report;
MONEY BURN HOW CEO PAY IS ACCELERATING CLIMATE CHANGE
Our contemporary executive pay incentives, analysts believe, directly encouraged the reckless behavior of Wall Street executives that led to the 2008 financial crisis. These same misplaced incentives are today encouraging the recklessness of fossil fuel executives — and deepening our global climate crisis.
The world’s largest fossil fuel companies are currently holding vast stocks of carbon reserves. These reserves, if all burned, would emit approximately 2,795 gigatons of carbon dioxide, five times the amount of carbon that researchers tell us would push the globe into catastrophic climate change, everything from extreme flooding and drought to a significant rise in sea level. Yet the fossil fuel industry, fixated on the extreme short term by perverse CEO pay incentives, is now spending over $600 billion a year to locate additional carbon reserves.
Today’s executive pay packages, these pages will show, give the leaders of America’s oil, gas, and coal giants an enormous personal financial incentive to spend billions per year developing new fossil fuel reserves that cannot be exploited without destabilizing the climate. These fossil fuel executives spend billions more on new infrastructure — pipelines, power plants, drilling platforms, and more — that lock us into fossil fuels at a time when our nation should be investing in conservation and renewable energy options.
The report quickly moves on to discussing what should be done with all that executive pay. Their top suggestion is to give the money to green groups.
What else could $6 billion pay for?
To put these fossil fuel executive compensation figures in perspective, we can compare them to several urgent climate-related challenges and opportunities at the U.S. and global levels.
Green Climate Fund
At the global level, $6 billion could double the U.S. governments’ $3 billion pledge to the Green Climate Fund, the new institution tasked with helping the world’s most vulnerable countries mitigate and adapt to climate change. …
Of course, it wouldn’t be possible to redistribute the money to green groups, if the money was still being paid to the executives.
Abolish executive performance pay
Michael Dorff of the Southwestern Law School, author of the 2014 book Indispensable and Other Myths: The True Story of CEO Pay, is proposing the abolition of “performance pay.” Others have suggested executives should have to wait to cash in such forms of compensation for at least 10 years, even if they are fired or retire. At best, stock options and other performance-pay incentives have CEOs thinking more about their own personal rewards than long-term enterprise sustainability. At their worst, “pay for performance” deals encourage criminal behavior.
If underpaid executives don’t have any financial incentive to do a good job, there might not be that much excess money to redistribute. But maybe I’m just being pessimistic. Perhaps all those formerly well paid company executives would discover a new source of motivation, while viewing pictures of happy green activists enjoying their new financial windfall.