Should executive pay be linked to CSR performance?

My perception is that some companies still don’t see the big picture when looking at Corporate Social Responsibility – CSR. Attention is usually paid to whether the company can become more green, can they give back to the community and are they sourcing materials from providers who operate ethically. Each of these points are important but there is a ‘SR’ in CSR and I feel the social piece of the equation is all too often an afterthought. A company should be looking to provide value to shareholders, investors and stakeholders while divining the difficult line between greed and ‘reasonable’ profit coupled with new investment and efforts to improve society and community. A new CSR survey completed by the Globe and Mail by Corporate Knights magazine shows that companies aren’t exactly walking the talk – in fact some of the report is really disheartening.

This is a fact that shocked me but perhaps I was somewhat naive. The CEOs of Canada’s largest 60 companies earn an average of 330 times the income of their lowest-paid employees. That figure can be interpreted in a number of ways but above all else it would seem that a company may be less than responsible in other areas of investment. Improving the quality of the product or service; improving working conditions or pay; assisting the community in numerous ways or donating time or resources to those in need are all things that could be accomplished and still have CEOs earn 100 times more than the lowest paid. Toby Heaps, editor-in-chief of Corporate Knights adds:

“There is not a lot of evidence to suggest that somebody should be paid 400 times more than the guy who is sweeping the lobby, astronomical pay divides speak to a misappropriation of a firm’s resources.”

Of course there is a counterpoint – Ken Hugessen of Hugessen Consulting Inc. of Toronto

“First and foremost, [companies] need to make sure they have the best possible talent in that chair, price is very important, but ultimately secondary.”

These companies each had compensation rates for CEOs in excess of 600 times higher than the lowest paid employee. Barrick Gold Corp | Canadian National Railway Co. | Toronto Dominion Bank |Rogers Communication Inc. |Royal Bank of Canada. Naturally there is far more to the overall CSR performance than giant pay discrepancies but one wonders if it may set the tone of a corporation? I do believe ‘talent’ at the executive level should be well rewarded but also feel a salary of perhaps 750 times that of someone on the bottom rung would provide a very suitable dividend. Moreover these salarys aren’t always tied in to market performance nor a commitment to practices related to good corporate citizenship. Less than half of the companies currently include ‘ environmental and social governance’ when evaluating the pay scales for executives. Ideally this will change in the coming years as shareholders will continue to demand a tangible CSR strategy as part of a corporate plan.

Experts infer that such salary gulfs can lead to internal damage concerning employee morale. The changes in the financial sector have resulted in shareholders placing far more scrutiny as how corporate money is spent and based on recent events the concern that executives make poor decisions to reach bonus targets has grown. A growing call for increased accountability should see these ratios improve as companies must show better risk management and in turn make improved social impact. For the time being though it seems that many companies are still acting like its 1987.