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Sustainability-Driven Innovation

 

Compensation and Benefits

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Transparency is Not Always a Choice

As turnover happens in an organization, inevitably information on salaries and benefits will become public, perhaps within the halls of the organization itself, and sometimes in more public venues via lawsuits or online salary aggregation sites like glassdoor.com. There are quite a few sites online now dedicated to anonymous sharing of company and salary information, and salaries of specific positions are made public, whether the organization wants it or not.

If stepping away from our 'sustainability lens' for a moment, compensation is a fundamentally complex and emotionally charged issue. For example, if one person comes to an organization and did a better job negotiating salary and benefits, does that create an imbalance somehow, or is that just smart business? Should a company founder or CEO have their compensation evaluated differently if they personally took on the risk of funding their fledgling company with their own money? Should a private, family-owned company be held to the same executive compensation transparency standards as a NYSE-listed corporation required to disclose salaries and compensation?

Therein lies an example of the decisions and arguments of sustainability, and as we will see, sometimes our job is to find that razor-thin line of being transparent, but also protecting the interests of the organization. While beating the drum of "transparency at all costs" sounds lovely in the spirited and hypothetical chatterings of a dinner with friends, the conversation with your boss, your boss's boss, or your boss's boss's boss will likely be quite different when you tell them you want to make their, their executives, and the Board's compensation public. Your friends may be buying you dinner for a while after that.

But, as we see in many cases in sustainability-related concerns, sometimes, being transparent will not be your choice. It may be someone else's.

B Corporation Guidelines for Compensation and Benefits

While quite a few sustainability standards delve into the aspect of compensation to varying degrees of detail, B Lab (the central hub of Certified B Corporation) offers a balanced view of compensation topics to be considered in their Impact Assessment. Formed as a straightforward set of assessment items, it asks questions in clear, unambiguous terms. While some standards may offer more open language and include somewhat undefined terms like "income equality," the B Corporation Impact Assessment is clear and decisive. This can be quite helpful for organizations to take the initial steps toward transparency and disclosure, and can seem quite a bit less intimidating than standards that may allow an organization to define an item themselves.

Especially in smaller, private companies, the need to take first steps and achieve modest successes in a sustainability program can not be underestimated, and the B Corporation Guidelines are especially well suited to these types of organizations. Their Impact Assessment also captures a Pareto-like slice of aspects and indicators, allowing it to deliver the majority of a meaningful sustainability assessment of an organization using a minimum of the aspects of a more widely scoped reporting standard, such as GRI.

Below is a brief look at the "Compensation & Wages" and "Worker Benefits" sections of the B Corporation Impact Assessment, as we can use it to scope the discussion with a bit more focus as opposed to speaking in general terms.

B Corporation Impact Assessment: Compensation & Wages
Metric Impact Assessment Question Weighting Assigned by B Lab
B Certified WR 2.1 Is an hourly living wage paid to all full-time, part-time, and temporary workers and independent contractors (excluding interns)? Heavy weighting
B Certified WR 2.2 What % above the living wage did your lowest-paid hourly worker receive during the last fiscal year? Equal weighting
B Certified WR 2.3 What multiple is the highest compensated individual paid (inclusive of bonus) as compared to the lowest paid full-time worker? Heavy weighting
B Certified WR 2.4 By what percentage has the company's total wages (excluding executive management) increased in the last fiscal year? Total wages are wages (including bonuses) paid to all employees during the last fiscal year. equal weighting
B Certified WR2.5 Have you acquired or referenced a compensation survey of your industry in the past three years? less weighting
B Certified WR2.6 Based on referenced compensation study, how does your company's compensation structure (excluding executive management) compare with the market? equal weighting
B Certified WR 2.7 In the last fiscal year, the company's bonus plan represented what % of the company's salary base (when calculating, exclude executive bonuses and salaries)? equal weighting
B Certified WR 2.8 What % of non-executive, full-time employees participated in the company's bonus plan in the last fiscal year? equal weighting
Worker Benefits
Metric Impact Assessment Question Weighting Assigned by B Lab
B Certified WR 3.1 Is health insurance offered to all full-time employees and their families? less weighting
B Certified WR 3.2 What % of paid health insurance premiums for individual coverage do full-time workers receive? Heavy weighting
B Certified WR 3.3 What % of paid health insurance premiums for family coverage do full-time workers receive? heavy weighting
B Certified WR 3.4 At what juncture do your part-time/flex-time employees qualify for full-time health care benefits? equal weighting
B Certified WR 3.5 Is there an Employee Retirement Plan (e.g., Pension, Profit Sharing, 401(k) available for all full-time tenured workers (tenured defined as with the company for greater of 2 years or life of the company)? equal weighting
B Certified WR 3.6 What is the minimum number of paid vacation days / sick days / personal days / holidays offered annually to full-time tenured workers? equal weighting
B Certified WR 3.7 What is the minimum number of days of paid maternity leave offered to full-time tenured workers? equal weighting
B Certified WR 3.8 What is the minimum number of days of paid paternity leave offered to full-time tenured workers? less weighting
B Certified WR 3.9 What is the severance (excluding employees terminated with cause) offered in practice and in writing to all full-time tenured workers? less weighting
B Certified WR 3.10 What additional benefits are offered to full-time tenured workers? [list of insurances and other benefits] heavy weighting

If you are interested to see what responses to a full Impact Assessment looks like, here are Method's responses to the B Lab Impact Assessment Questionnaire.

For your Consideration

Considering the overall scope of the issue of 'compensation and benefits,' are there any aspects you would have expected to see on the list? Do you agree with the weightings B Lab has assigned to each aspect? Should the compensation of outsourced/offshore workers be better addressed, or do you believe that to be addressed elsewhere?

An Original Innovator in Compensation: Ben & Jerry's

 ben and jerry's ice cream logo

Ben & Jerry's was an early innovator on a variety of sustainability issues, but they were especially so on the issue of worker and executive compensation, and specifically living wages and indexing executive compensation to that of employees. It is a model which quite a few other companies have adopted over the years including Whole Foods, which we will visit later in this Lesson. While Ben & Jerry's may have innovated in compensation, we have seen that admirable compensation practice fall by the wayside as the company matured and was then purchased by Unilever. Consider the progression of compensation practices over the years, as captured below:

From "Passing the Scoop", Claudia Dreifus's interview of Ben Cohen and Jerry Greenfield as they were seeking a new CEO to succeed Ben. The New York Times, 1994:

Q: Your company used to have a salary system where the highest-paid employee made no more than five times the lowest-paid one. It's been in the press that you've increased your own salaries.

JERRY: We went from a salary ratio of 5 to 1 to 7 to 1. The top salary moved from $100,000 a year to $150,000 year. Ben and I are not at the top salary within the company. The president of the company, Chuck Lacy, is. Ben and I earn $132,500. In order to get this new C.E.O., we are not going to restrict ourselves. I expect that we will be paying compensation at the low end of market rates for a C.E.O.

From Edwards, 2011, in describing compensation in the years immediately preceding Ben & Jerry's sale to Unilever:

Ben & Jerry's once, admirably, had a 5 to 1 rule limiting the pay of its CEO -- $81,000 -- to the company's lowest paid worker. It required the CEO to raise the pay of his employees to create a pay raise for himself. Ben & Jerry's abandoned that rule in 1994 when the company couldn't find anyone to replace Ben Cohen upon his retirement.

During the 1990s, the 5 to 1 rule became a 7 to 1 rule, lifting the CEO's salary to $150,000.

By 2000, the CEO's pay rose to 17 to 1, or $504,848, not including stock options.

At that point, Ben & Jerry's was acquired by Unilever (UL) and the company stopped disclosing details about its CEO's pay. The board of directors no longer discloses its compensation either, even though board chairman Jeff Dossier claims he is "dedicated to creating a more just world." The compensation of current CEO Jostein Solheim is now a secret. That's less disclosure than is offered by Ben & Jerry's larger corporate parent.

Note that the 17:1 ratio was before the sale to Unilever, and that it did not include stock options. In the case of many executives, stock options are a massive portion of compensation, and many would consider the exclusion of options to be, at best a misstep, and at worst, a designed deception.

Then, Ben and Jerry's was sold, and the founders received their just compensation for their years of risk and work:

From Edmonson, 2014:

But the company eventually grew beyond the managerial abilities of its board, and after years of struggling, they were forced to sell to Unilever, the world’s second-largest food company. Co-founder Ben Cohen walked away from the deal with $41 million, and Jerry Greenfield got $9.5 million.

Working the numbers based on the 17:1 executive compensation ratio in place in 2000 before the sale, Ben's compensation that year would have been 1380:1, and he may have also walked away with options and other evergreen clauses. In many cases as we will see, the early ideals of sustainability create the "halo effect" for a brand, but the actual practices may erode or be hidden from view over time.

In the practice of sustainability and innovation, this is an omnipresent struggle: that we not only strive to create and live out ideals in organizations, but continue to grow the ideals over time as the organization grows. Unfortunately, as we will see throughout this course, companies that lived high ideals that faded over time may be subject to more criticism than than companies that never lived out high ideals in the first place (see "The Jilted Lover Effect"). Sustainability is certainly not without risk.

As we will try to cultivate throughout our time together, we will need to set aside our personal, idealistic passion for sustainability to also be able to judge situations, decisions, and business cases through an impartial, unbiased lens. It is through those optimist/realist lenses that we will be able to see the potential, as well as the potential risks. Sometimes, we will play the "short game," and other times we must take a longer view, and it is important to be able to take detached views at times. Companies may live by their ideals, but they can also die by those ideals.

So we may see both the idealist, passionate view that Ben & Jerry's "sold out" from their original ideals, but also the realist view that for the business to remain sustainable as it grew from a two-man operation into a powerhouse brand, finding a CEO capable of taking the reigns for sub-market compensation would be very difficult. Discussion of the finer points of compensation ratios becomes a bit moot if a sub 17:1-compensated CEO were to run Ben & Jerry's into bankruptcy.

Five word summary - Defining fair pay and fair play