Abstract
On January 29, 2016, the Obama administration proposed that the Equal Employment Opportunity Commission collect yearly data on remuneration based on gender, race, and ethnicity from firms having at least 100 employees. However, it so happens that the current Global Reporting Initiative framework calls for such information to be reported by organizations voluntarily. This article focuses on the remuneration and benefit items expected to be reported by organizations in the fourth version of the Global Reporting Initiative.
Keywords
Introduction
Launched in 1997, the Global Reporting Initiative (GRI) is a worldwide, independent standards body designed to assist corporations, governments and nongovernmental organizations to disclose the effects of sustainability, including issues such as climate change, human rights, and corruption, on those organizations and society. GRI was initially confined to environmental reporting and oriented to investors. A year later, this initiative morphed into a broader sustainability project geared to various organizational stakeholders. By 2000, the guidelines of the GRI were widely publicized. A second iteration was introduced in 2002. In 2006, a third version was issued, providing clearer guidance to preparers and users alike in following the reporting guidelines. Finally, in 2013, the fourth and current set of guidelines was unveiled, refining the framework even further, emphasizing depth rather than breadth in organizational reporting on sustainability. This new generation is more closely oriented to remuneration issues, the focus of this article, and more aligned with the UN Global Compact Principles and UN Guiding Principles on Business and Human Rights. A wide range of experts from all over the world was consulted in developing each generation of GRI, including companies, civil societies, labor organizations, academe, and finance. To date, there are at least 24,000 reports in the GRI database, and the system is referenced by 27 countries and regions in their policies. 1
The GRI entails comprehensive sustainability disclosures covering corporate governance and economic, labor and social performance in a uniform manner to facilitate comparability among particular organizations. Specific metrics are called for under the GRI, which allows for voluntary reviews by third parties as well. All in all, compliance with the GRI is a reflection of the commitment of the organization to sustainability. The GRI requests data such as costs incurred, waste incurred and cost of remediating contamination, along with physical data such as polluted air emitted.
U.S. companies provide sustainability reporting on a voluntary basis, with many large ones using the GRI in various forms, but that is not necessarily the case for companies based in other countries. In fact, the European Union in 2014 adopted a new directive requiring multinational companies having more than 500 employees to furnish nonfinancial disclosures on sustainability issues and they are advised to use established frameworks for disclosure. The U.S. Securities and Exchange Commission (SEC) 2 is currently considering whether to require specific disclosures on sustainability by companies reporting to the commission in order to help investors and other users of financial reports gain a broader perspective on corporate performance. In fact, the SEC has recently solicited feedback on which issues investors desire to be disclosed and the nature of the disclosure framework preferred. 3 In the past, the SEC has required few specific sustainability disclosures from its corporate registrants. In 1976, the SEC first called for disclosure of estimated material capital expenditures for environmental controls. In 2010, the SEC provided guidance for disclosures on the risks associated with climate change. Current voluntary disclosures dealing with sustainability issues in SEC reports, which tend to have a public relations orientation and do not facilitate comparability among companies even in the same industry.
This article focuses specifically on the remuneration and benefits items expected to be reported by organizations in the fourth version of the GRI. Considerable information is called for in this realm, which should enable whoever examines and evaluates GRI reports to compare and contrast remuneration policies from one organization to another, similar and dissimilar. The information requested is mostly found in the “Social” part of the GRI (rather than the other parts—Economic and Environmental) within the subcategory of Labor Practices and Decent Work.
Discussion
Under the GRI, there are two reporting levels: an entry track for general disclosures and a more comprehensive track. No longer will an organization be required to respond to each social, economic and labor indicator as in previous GRI frameworks, but rather to each “materiality” aspect of its performance in those dimensions, stressing that the issues mattering most are those to analyze and disclose, including how those issues are defined and managed as well as their impacts. Above all, the organization is expected to disclose the risks and opportunities underlying those issues and how stakeholders are involved in dealing with them. The manner in which management of these issues is assessed is also necessary to report.
Governance of the Company
GRI now calls for full reporting of the governance structure, its composition, and its remuneration, including the role of the highest governing body in sustainability reporting and evaluating the firm’s economic, environmental and social performance. In particular, the following items are requested to be disclosed:
G4-34
a. Report the governance structure of the organization, including committees of the highest governance body. Identify any committees responsible for decision-making on economic, environmental and social impacts.
An example of current GRI reporting from Proctor & Gamble (P&G)
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pertaining to G4-34 can be seen in Table 1. It is important to note that P&G does not adhere to GRI 4, but rather aligns with GRI 4: This report was prepared using the Global Reporting Initiative’s (GRI’s) G3 Reporting Guidelines. . . . The GRI has not verified the contents of this report, nor does it take a position on the reliability of information reported herein.
Excerpt From P&G Sustainability Report 2014.
Good governance, whether at P&G or in other organizations, including profit and nonprofit, should involve linking the organizational structure and management practices to its mission and goals.
G4-35
a. Report the process for delegating authority for economic, environmental and social topics from the highest governance body to senior executives and other employees.
G4-36
a. Report whether the organization has appointed an executive-level position or positions with responsibility for economic, environmental and social topics, and whether post holders report directly to the highest governance body [put another way, does the company have a sustainability officer]
For examples applicable to G4-35 and G4-36, let us turn to PepsiCo 5 in Table 2. This company explicitly asserts that its sustainability report is “written under the GRI G4 guidelines.” The firm has identified a specific framework for aligning its corporate governance with the nature of its business, describing how it implements that framework in its worldwide operations.
Excerpt From PepsiCo’s Performance With Purpose: 2014 GRI Report.
G4-43
a. Report the measures taken to develop and enhance the highest governance body’s collective knowledge of economic, environmental and social topics.
G4-44
a. Report the processes for evaluation of the highest governance body’s performance with respect to governance of economic, environmental and social topics. Report whether such evaluation is independent or not, and its frequency. Report whether such evaluation is a self-assessment.
Accordingly, an external auditor or consultant may be engaged for the sustainability reporting, as was the case with previous generations of the GRI.
b. Report actions taken in response to evaluation of the highest governance body’s performance with respect to governance of economic, environmental and social topics, including as a minimum, changes in membership and organizational practice.
Stated differently, what has the organization done about the evaluation?
Remuneration and Incentives
These disclosures pertain to the compensation policies set forth by the organization, so that remuneration aligns with the strategic goals of the organization and its stakeholders in order to facilitate the hiring and retention of the highest governing body, senior officials and employees.
G4-51
a. Report the remuneration policies of the highest governance body and senior executives for the below types of remuneration
—Fixed pay and variable pay —Performance-based pay —Equity-based pay —Bonuses —Deferred or vested shares —Sign-on bonuses or recruitment incentive payments —Termination payments —Clawbacks [which should be particularly informative in terms of the circumstances underlying them and actual actions taken]
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—Retirement benefits, including the difference between benefit schemes and contribution rates for the highest governance body, senior executives, and other employees
The foregoing set of indicators on Remuneration in G4-51 was not reflected in the previous versions of the GRI.
For additional examples of GRI Disclosures on Remuneration, let us look at excerpts from Microsoft’s 2015 GRI report
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(Table 3). Referring to the GRI standards, Microsoft states, This report contains Standard Disclosures from the Global Reporting Initiative’s G4 Sustainability Reporting Guidelines, which we used to prepare this report. Please see our online GRI G4 Index for detailed data and additional information.
Excerpt From Microsoft 2015 Citizenship Report.
Eaton 8 is also reporting extensively on remuneration, as seen in Table 4. Eaton appears to maintain a rigorous employee evaluation system, whereby the firm compares its employees among peers to foster their best overall performance. On the GRI standards, Eaton asserts,
Excerpt From Eaton 2015 Proxy Statement and Notice of Meeting.
G4 offers two “in accordance” options: “Core” and “Comprehensive”. Our 2015 report is in accordance with G4 Core. . . . [Y]ou’ll find the G4 Standard Disclosures Index for Eaton’s sustainability performance.
G4-52
a. Report the process for determining remuneration. Report whether remuneration consultants are involved in determining remuneration and whether they are independent of management. Report any other relationships which the remuneration consultants have with the organization.
That is also a new indicator to GRI 4.0.
G4-53
a. Report how stakeholders’ views are sought and taken into account regarding remuneration, including the results of votes on remuneration policies and proposals, if applicable.
This is another new remuneration indicator from the latest GRI guidelines.
G4-54
a. Report the ratio of the annual total compensation for the organization’s highest-paid individual in each country of significant operations to the median annual total compensation for all employees (excluding the highest-paid individual) in the same country.
The foregoing G4-54 is still another new remuneration indicator.
G4-66
a. Report the ratio of percentage increase in annual total compensation for the organization’s highest-paid individual in each country of significant operations to the median percentage increase in annual total compensation for all employees (excluding the highest-paid individual) in the same country.
Finally, G4-66 is yet another remuneration indicator.
Employment Benefits
Benefits to full-time but not part-time or temporary employees
a. Report the benefits which are standard for full-time, but not other employees, including:
—Life insurance
—Health care
—Disability and invalidity coverage
—Parental leave
—Retirement provision
—Stock ownership
—Others
The previous versions of the GRI requested less specific information about differential benefits for full-time version part-time employees.
b. Report the definition used for significant locations of operation.
Freedom of Association and Collective Bargaining
In this realm, under the new GRI guidelines, operations and suppliers should deal with possible violations of freedom to associate and collectively bargain:
Report operations and suppliers in which employee rights to exercise freedom of association and collective bargaining may be violated or at risk: Type of operation Countries or geographical areas
Report measures taken to support freedom of association and collective bargaining
G4-LA12
Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership and other indicators of diversity.
Report the percentage of individuals within the organization’s governance bodies in each of the following diversity categories: Gender Age group: under 30 years old, 30-50 years old, over 50 years old Minority groups Other indicators of diversity where relevant
Report the percentage of employees per employee category in each of the following diversity categories: Gender Age group: under 30 years old, 30-50 years old, over 50 years old Minority groups Other indicators of diversity where relevant
For examples of G4-LA12, we turn again to an excerpt from Microsoft’s GRI Report (see Table 5). Microsoft prepares a disaggregated report on who its employees are in terms of gender and ethnicity. This company has been in the forefront of fostering diversity in its employee composition, providing benefits to same-sex couples, just as for traditional relationships.
Excerpt From Microsoft 2015 Citizenship Report.
Analysis
Whereas the third generation of GRI called for limited specific information on remuneration, the fourth generation offers a number of data items on this topic, which can facilitate comparison with other organizations issuing similar GRI reports. Report readers may wish to relate remuneration policies, practices and procedures from one company to another in terms of total revenues generated, total expenses incurred, total assets, total debt and total equity as well as net cash inflows during the year from operating, investing and financing activities using the GRI reports along with financial statements.
Readers of the GRI, including consumer advocates, on remuneration in the broad realm of sustainability should be able to rate the overall performance of organizations of interest based on their GRI statements, again along with the financial statements the company has issued. The GRI enables organizations to benchmark their remuneration practices in terms of required data, metrics and ratios with peer organizations also following the same guidelines, based on their mission statements, strategic initiatives, risks and opportunities. Improvements in the organization’s compensation of its employees over time could be captured in the new GRI framework as well.
Some organizations may wish to grant market adjustments to their staff based on the benchmarking; other entities may decide their remuneration practices are generous. Prospective and current employees should, in fact, be interested in knowing the specific remuneration policies of their organization to evaluate whether those policies are fair in terms of work done and the nature of the entity and industry, in order to pursue or discontinue employment in that organization. Accordingly, the GRI offers yet another tool for examining and assessing the human resource function and many aspects of organizational social responsibility, and the latest version enhances this tool for that purpose.
On January 29, 2016, the Obama administration proposed that the Equal Employment Opportunity Commission (EEOC) collect yearly data on remuneration based on gender, race, and ethnicity from firms having at least 100 employees. That would cover 63 million workers nationwide. The EEOC will subsequently analyze the data using a statistical model to pinpoint firms discriminating in their remuneration policies. As might be expected, companies are not likely to welcome this reporting, ever reluctant to provide disclosures they would prefer to hide from the government and public. 9 The proposal was open for comment until April 1, 2016.
It so happens that the current GRI framework calls for such information to be reported by organizations voluntarily, which constitutes public information in contrast the EEOC data, which is filed confidentially. Nevertheless, required disclosure of such information on remuneration to the federal government may well embarrass firms to the point of remedying the remuneration disparities that are bound to be reflected. That conceivably could serve to reduce the inequities without the need for further governmental intervention in many cases. (For specific requirements of the EEOC, IRS and SEC on discrimination issues, see the Appendix.)
Concluding Comments
While the GRI provides a useful framework for sustainability disclosures, comparing firms applying this framework even in the same industry has been problematic. Too many companies have used the framework a la carte, and very few hire external assurers to report on the enterprise’s adherence to the guidelines. The examples of GRI remuneration disclosures by companies such as Eaton, Microsoft, and PepsiCo as cited in this article are by no means outliers. While organizations are undoubtedly spending considerable time and effort to apply the GRI, the reports in large part represent a biased public relations medium, emphasizing what those organizations wish to report—the positive features about their sustainability endeavors, omitting descriptions of the negative features that require significant attention 10 (see also Boiral 11 ).
The fourth generation of GRI standards may enhance the quality of reporting by stressing only material aspects of disclosure, but the guidelines still call for self-reported information. Moreover, the new guidelines remain generalized rather than industry-specific, which could be more appropriate in light of the fact that different industries are affected differently by particular sustainability issues such as green house gas emissions, product safety, human rights and bribery. If the SEC were to require specific sustainability disclosures from its registered companies, that would go a long way toward improving the state of reporting that companies currently pursue in this domain. However, at this time from the author’s perspective, there does not appear to be an overwhelming desire on the part of organizations to systematically and uniformly provide sustainability disclosures.
Epilogue
The Sustainability Accounting Standards Board (SASB; www.sasb.org) is an independent organization developing specific industry (e.g., health care, transportation, financial, technology/communications) accounting standards that could be integrated by companies into their SEC regulatory filings. The SASB has compiled provisional metric standards based on material information intended to be useful for investor decision making and to facilitate comparability in sustainability reporting by industry. A total of 2,800 investors and companies have been involved in working groups in this endeavor so far. The provisional standards were released in April 2016, and were open for public comment (www.sasb.org). While the GRI is focused on many stakeholders, the SASB is targeting primarily investors.
Footnotes
Appendix
Nondiscrimination Requirements for Business.
| Agency | Types of discrimination | Coverage | Reporting requirements |
|---|---|---|---|
| EEOC | Age; race; religion; national origin; sex; pregnancy; equal pay; disabilities; harassment; retaliation; genetic information a | For business or private employer b : | Submit workforce data by reporting EEO-1 to EEO-5 reports. Reports generally lists employee numbers, job categories, race, sex |
| Race, religion, national origin, sex: Business with 15 or more employees | Requirements for EEO-1 c : | ||
| Age: 20 or more employees | |||
| Equal pay: Generally all businesses | |||
| Workforce data collection: 100 employees or more; or federal contractors | |||
| Requirements for EEO-5 d : | |||
| “. . . labor force data from public elementary and secondary school districts with 100 or more employees within 50 U.S. states and District of Columbia. The reporting provide information on their employment totals, employees’ job category and sex and race/ethnic groups . . .” | |||
| IRS | Ensure 401K plan treats employees fairly, no discrimination between key employee and lower level employees | IRS conducts 401(k) nondiscrimination tests (ADP and ACP Test); allows safe harbor by matching contribution. e | |
| SEC | No explicit rules on discrimination | Disclose discrimination lawsuit as a major event or the events affecting the company f |
Note. EEOC = Equal Employment Opportunity Commission; IRS = Internal Revnue Service; SEC = Securities and Exchange Commission.
https://www.investor.gov/introduction-investing/basics/how-market-works/public-companies see section “Transparency and Continuing Disclosures” in the website).
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author received no financial support for the research, authorship, and/or publication of this article.