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Clamping down on excessive executive pay

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Barclays and Aviva are two high-profile companies that have recently made the headlines because of shareholder revolts over excessive executive pay. Especially at a time of recession, this trend is simply not sustainable for our economy.

Real questions over executive pay have really only entered the public and shareholder consciousness in more recent years, but the very nature of the revolts currently occurring threaten to cause widespread economic instability and an unrelenting slump.

One of the first national cases of this ilk involved former M&S chief executive Sir Stuart Rose, who in 2009 pocketed a cushy £4.3m in pay and bonuses—a 140% increase on his previous year’s income—despite the organisation’s revenue rising by just 5% to £632m in the same year.

But in the last few weeks, Barclays and Aviva both hit the headlines after witnessing shareholder uprisings because of the disproportionate pay-packets of their executives.

Shareholders have begun to throw their weight around in major companies, and the fallout of the Aviva case study in particular saw chief executive Andrew Moss forced into resignation.

According to shareholders, Moss’ position had become untenable, particularly given that Aviva, as an institutional investor, had voted against excessive executive pay at Trinity Mirror, whose own chief executive Sly Bailey has received similar flak.

Shareholders have lost patience with companies that have underperformed and are still paying out a lot of money”, says Tom Powdrill, head of communications at corporate governance advisory firm, PIRC.

The political pressure is a new thing, and has certainly been really strong in the last couple of years.

As a result, there must be, because of the voting outcomes [54% of Aviva shareholders voted against the company’s executive pay policies], some institutions out there that have basically decided that they need to toughen up their approach for whatever reasons.

That combination of factors just hasn’t been there before.”

In 2010, an independent inquiry was launched to tackle the issue of executive pay. Chaired by Deborah Hargreaves, formerly of The Guardian and The Financial Times, the yearlong investigation, called the High Pay Commission, spawned the formation of the High Pay Centre, of which Hargreaves is director.

When we had rising house prices and a fairly benign economic climate, people were more relaxed about big pay awards, but I think since the financial crisis, that’s changed”, she told Blue & Green Tomorrow.

There has been increasing public anger, but also shareholders have begun to realise that they’ve been short-changed by these companies, where they’ve paid ever-increasing amounts of money to the top managers, and yet they themselves have not seen their returns increased and their dividend has been stagnant.

The share prices have gone down, so shareholders have been losing out and have not really been getting what they paid for.”

The Aviva remuneration report vote speaks for itself. A percentage of shareholders nine times larger than the British average opposed the company’s executive pay policies; Barclays suffered a similar fate.

A total of 26.9% of shareholders were against its executive pay package, whilst a further 21% voted against the re-election of Alison Carnwath, the remuneration committee chairman who is incidentally still in a job.

Paying boardroom executives millions of pounds in bonuses and increasing their pay dramatically year-on-year despite the company’s overall financial situation being stagnant or declining is simply unsustainable.

I think it’s particularly contentious because of the economic climate that we’re in”, Hargreaves adds.

When you’re seeing people getting very minimal pay rises or pay freezes, and in some cases pay cuts, or people getting made redundant and slipping down the income ladder, I think it then becomes a big public debate.

The feeling is that there is a great deal of unfairness in the way people at the top are awarded, and I think it’s quite hard for the general public to understand the justifications...”

Powdrill of PIRC, which was founded in 1986 and stands for Pensions and Investment Research Consultants, adds that there were three drivers behind the latest wave of executive pay protests from shareholders.

Partly, it is the reality that shareholders seem to get more interested in governance issues and are more exercised about remuneration where the performance of companies isn’t great”, he says.

Secondly, since the financial crisis in the UK, there has been a fairly common thread, which has continued despite a change in government, that shareholders need to be more active on governance issues more generally.

Then thirdly, there is the wider, public debate about executive pay. It’s certainly caught popular imagination again.”

So what is the solution? Clearly, whilst executive pay disputes continue to hog national headlines, more shareholders are going to speak up and make their voice heard within other major companies.

In Australia, they have a “two strikes” system, under which company directors are forced into re-election if more than 25% of shareholders vote against the remuneration report for two consecutive years.

Whilst this procedure might not work in the UK—Powdrill says the Australian system is “a bit complicated”—something of a similar type is required to put an end to the worrying trend.

Business secretary Vince Cable has previously outlined solutions, such as giving shareholders a binding vote on pay, but this in itself, if implemented wrongly, could cause even greater problems for companies.

Even without legislation on unjustly excessive pay-packets, the High Pay Centre’s Hargreaves thinks that in some ways, companies will naturally realise that this isn’t a sustainable path to follow.

There is this erosion of public trust in companies, and companies are even thinking that it might affect their license to operate in the UK”, she says.

Once that starts to happen, it’s a very worrying trend, because we need these companies to lead us out of recession.

We can’t have a situation where the public thinks they’re all ripping us off, so I do think companies are looking at this in more detail.

They’re not all taking any action and some of them don’t see the need to, but I do think there is a realisation that one thing needs to change, and it will change in the next couple of years.”

Let the cases of Barclays and Aviva be a lesson to all major companies around the world. As shareholders become increasingly vocal, paying executives irrational sums of money during mediocre or even loss-making financial times will become a thing of the past.

Despite this, Blue & Green Tomorrow encourages shareholders and investors to support companies that are concerned about the issue right now.

More businesses with these ethics will reap equality in our economy. And with an equal economy comes sustainability – the key to a blue and green tomorrow.

Further reading:

Aviva shareholders speak out on executive pay

Barclays under fire… again

Performance vs. pay: should boardroom officials be rewarded regardless of their company’s success?

Editors Choice

2017 Was the Most Expensive Year Ever for U.S. Natural Disaster Damage

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Natural Disaster Damage
Shutterstock / By Droidworker | https://www.shutterstock.com/g/droidworker

Devastating natural disasters dominated last year’s headlines and made many wonder how the affected areas could ever recover. According to data from the U.S. National Oceanic and Atmospheric Administration (NOAA), the storms and other weather events that caused the destruction were extremely costly.

Specifically, the natural disasters recorded last year caused so much damage that the associated losses made 2017 the most expensive year on record in the 38-year history of keeping such data. The following are several reasons that 2017 made headlines for this notorious distinction.

Over a Dozen Events With Losses Totalling More Than $1 Billion Each

The NOAA reports that in total, the recorded losses equaled $306 billion, which is $90 billion more than the amount associated with 2005, the previous record holder. One of the primary reasons the dollar amount climbed so high last year is that 16 individual events cost more than $1 billion each.

Global Warming Contributed to Hurricane Harvey

Hurricane Harvey, one of two Category-4 hurricanes that made landfall in 2017, was a particularly expensive natural disaster. Nearly 800,000 people needed assistance after the storm. Hurricane Harvey alone cost $125 billion, with some estimates even higher than that. So far, the only hurricane more expensive than Harvey was Katrina.

Before Hurricane Harvey hit, scientists speculated climate change could make it worse. They discussed how rising ocean temperatures make hurricanes more intense, and warmer atmospheres have higher amounts of water vapor, causing larger rainfall totals.

Since then, a new study published in “Environmental Research Letters” confirmed climate change was indeed a factor that gave Hurricane Harvey more power. It found environmental conditions associated with global warming made the storm more severe and increase the likelihood of similar events.

That same study also compared today’s storms with ones from 1900. It found that compared to those earlier weather phenomena, Hurricane Harvey’s rainfall was 15 percent more intense and three times as likely to happen now versus in 1900.

Warming oceans are one of the contributing factors. Specifically, the ocean’s surface temperature associated with the region where Hurricane Harvey quickly transformed from a tropical storm into a Category 4 hurricane has become about 1 degree Fahrenheit warmer over the past few decades.

Michael Mann, a climatologist from Penn State University, believes that due to a relationship known as the Clausius-Clapeyron equation, there was about 3-5 percent more moisture in the air, which caused more rain. To complicate matters even more, global warming made sea levels rise by more than 6 inches in the Houston area over the past few decades. Mann also believes global warming caused the stationery summer weather patterns that made Hurricane Harvey stop moving and saturate the area with rain. Mann clarifies although global warming didn’t cause Hurricane Harvey as a whole, it exacerbated several factors of the storm.

Also, statistics collected by the Environmental Protection Agency (EPA) from 1901-2015 found the precipitation levels in the contiguous 48 states had gone up by 0.17 inches per decade. The EPA notes the increase is expected because rainfall totals tend to go up as the Earth’s surface temperatures rise and additional evaporation occurs.

The EPA’s measurements about surface temperature indicate for the same timespan mentioned above for precipitation, the temperatures have gotten 0.14 Fahrenheit hotter per decade. Also, although the global surface temperature went up by 0.15 Fahrenheit during the same period, the temperature rise has been faster in the United States compared to the rest of the world since the 1970s.

Severe Storms Cause a Loss of Productivity

Many people don’t immediately think of one important factor when discussing the aftermath of natural disasters: the adverse impact on productivity. Businesses and members of the workforce in Houston, Miami and other cities hit by Hurricanes Harvey and Irma suffered losses that may total between $150-200 billion when both damage and sacrificed productivity are accounted for, according to estimates from Moody’s Analytics.

Some workers who decide to leave their homes before storms arrive delay returning after the immediate danger has passed. As a result of their absences, a labor-force shortage may occur. News sources posted stories highlighting that the Houston area might not have enough construction workers to handle necessary rebuilding efforts after Hurricane Harvey.

It’s not hard to imagine the impact heavy storms could have on business operations. However, companies that offer goods to help people prepare for hurricanes and similar disasters often find the market wants what they provide. While watching the paths of current storms, people tend to recall storms that took place years ago and see them as reminders to get prepared for what could happen.

Longer and More Disastrous Wildfires Require More Resources to Fight

The wildfires that ripped through millions of acres in the western region of the United States this year also made substantial contributions to the 2017 disaster-related expenses. The U.S. Forest Service, which is within the U.S. Department of Agriculture, reported 2017 as its costliest year ever and saw total expenditures exceeding $2 billion.

The agency anticipates the costs will grow, especially when they take past data into account. In 1995, the U.S. Forest Service spent 16 percent of its annual budget for wildfire-fighting costs, but in 2015, the amount ballooned to 52 percent. The sheer number of wildfires last year didn’t help matters either. Between January 1 and November 24 last year, 54,858 fires broke out.

2017: Among the Three Hottest Years Recorded

People cause the majority of wildfires, but climate change acts as another notable contributor. In addition to affecting hurricane intensity, rising temperatures help fires spread and make them harder to extinguish.

Data collected by the National Interagency Fire Center and published by the EPA highlighted a correlation between the largest wildfires and the warmest years on record. The extent of damage caused by wildfires has gotten worse since the 1980s, but became particularly severe starting in 2000 during a period characterized by some of the warmest years the U.S. ever recorded.

Things haven’t changed for the better, either. In mid-December of 2017, the World Meteorological Organization released a statement announcing the year would likely end as one of the three warmest years ever recorded. A notable finding since the group looks at global land and ocean temperature, not just statistics associated with the United States.

Not all the most financially impactful weather events in 2017 were hurricanes and wildfires. Some of the other issues that cost over $1 billion included a hailstorm in Colorado, tornados in several regions of the U.S. and substantial flooding throughout Missouri and Arkansas.

Although numerous factors gave these natural disasters momentum, scientists know climate change was a defining force — a reality that should worry just about everyone.

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Environment

How to be More eco-Responsible in 2018

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eco-responsible
Shutterstock / By KENG MERRY Paper Art | https://www.shutterstock.com/g/kengmerrymikeymelody

Nowadays, more and more people are talking about being more eco-responsible. There is a constant growth of information regarding the importance of being aware of ecological issues and the methods of using eco-friendly necessities on daily basis.

Have you been considering becoming more eco-responsible after the New Year? If so, here are some useful tips that could help you make the difference in the following year:

1. Energy – produce it, save it

If you’re building a house or planning to expand your living space, think before deciding on the final square footage. Maybe you don’t really need that much space. Unnecessary square footage will force you to spend more building materials, but it will also result in having to use extra heating, air-conditioning, and electricity in it.

It’s even better if you seek professional help to reduce energy consumption. An energy audit can provide you some great piece of advice on how to save on your energy bills.

While buying appliances such as a refrigerator or a dishwasher, make sure they have “Energy Star” label on, as it means they are energy-efficient.

energy efficient

Shutterstock Licensed Photo – By My Life Graphic

Regarding the production of energy, you can power your home with renewable energy. The most common way is to install rooftop solar panels. They can be used for producing electricity, as well as heat for the house. If powering the whole home is a big step for you, try with solar oven then – they trap the sunlight in order to heat food! Solar air conditioning is another interesting thing to try out – instead of providing you with heat, it cools your house!

2. Don’t be just another tourist

Think about the environment, as well your own enjoyment – try not to travel too far, as most forms of transport contribute to the climate change. Choose the most environmentally friendly means of transport that you can, as well as environmentally friendly accommodation. If you can go to a destination that is being recommended as an eco-travel destination – even better! Interesting countries such as Zambia, Vietnam or Nicaragua are among these destinations that are famous for its sustainability efforts.

3. Let your beauty be also eco-friendly

eco-friendly

Shutterstock / By Khakimullin Aleksandr

We all want to look beautiful. Unfortunately, sometimes (or very often) it comes with a price. Cruelty-free cosmetics are making its way on the world market but be careful with the labels – just because it says a product hasn’t been tested on animals, it doesn’t  mean that some of the product’s ingredients haven’t been tested on some poor animal.

To be sure which companies definitely stay away from the cruel testing on animals, check PETA Bunny list of cosmetic companies just to make sure which ones are truly and completely cruelty-free.

It’s also important if a brand uses toxic ingredients. Brands such as Tata Harper Skincare or Dr Bronner’s use only organic ingredients and biodegradable packaging, as well as being cruelty-free. Of course, this list is longer, so you’ll have to do some online research.

4. Know thy recycling

People often make mistakes while wanting to do something good for the environment. For example, plastic grocery bags, take-out containers, paper coffee cups and shredded paper cannot be recycled in your curb for many reasons, so don’t throw them into recycling bins. The same applies to pizza boxes, household glass, ceramics, and pottery – whether they are contaminated by grease or difficult to recycle, they just can’t go through the usual recycling process.

People usually forget to do is to rinse plastic and metal containers – they always have some residue, so be thorough. Also, bottle caps are allowed, too, so don’t separate them from the bottles. However, yard waste isn’t recyclable, so any yard waste or junk you are unsure of – just contact rubbish removal services instead of piling it up in public containers or in your own yard.

5. Fashion can be both eco-friendly and cool

Believe it or not, there are actually places where you can buy clothes that are eco-friendly, sustainable, as well as ethical. And they look cool, too! Companies like Everlane are very transparent about where their clothes are manufactured and how the price is set. PACT is another great company that uses non-GMO, organic cotton and non-toxic dyes for their clothing, while simultaneously using renewable energy factories. Soko is a company that uses natural and recycled materials in making their clothes and jewelry.

All in all

The truth is – being eco-responsible can be done in many ways. There are tons of small things we could change when it comes to our habits that would make a positive influence on the environment. The point is to start doing research on things that can be done by every person and it can start with the only thing that person has the control of – their own household.

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