Clean tech giants cling to start up pay mentality

They are fast emerging as the new Silverbacks in the corporate jungle, but that has not stopped clean tech companies sticking with their start up roots when it comes to executive remuneration.

According to a study of executive compensation data from 95 publicly traded clean tech firms undertaken by San Francisco-based consultancy Presidio Pay Advisors, listed firms operating in low carbon industries still resemble start ups with a surprisingly large proportion of executive compensation compensation “at risk” in the form of equity and other performance based incentives.

In another anomaly compared to conventional businesses, the largest clean tech companies offered the most "at risk" compensation to their executives. For example, clean tech companies with revenue of over a billion a year had on average over 78 per cent of CEO pay dependent on company or CEO performance.

They also tended to have a higher proportion of founders who have stuck with the companies and held substantial stakes in the business. The study revealed that founder CEOs of clean tech companies held a median of eight per cent of total shares outstanding. In contrast, previous studies have shown that median founder CEO ownership following an IPO has fallen to less than three per cent across all sectors.

Speaking to BusinessGreen.com, Kyle Holm, a principal at Presidio Pay Advisors, said the clean tech companies studied had been listed for a median period of 15 years, but were still using compensation mechanisms typically adopted by start ups in order to conserve cash and incentivise executives to pursue rapid growth.

"It is unusual for such large companies to pursue this strategy as when you can afford to pay cash it usually makes sense not to give away equity," he explained. "But what the companies and the chief executives are saying is that they still see massive advantages to be had from driving rapid growth and forgoing rewards until the future."

The danger attached to this approach, as amply evidenced by the banking sector in recent years, is that bonus heavy compensation mechanisms will encourage executives to take excessive risks in the pursuit of rapid growth.

Holm acknowledged this could be a risk for some individual clean tech firms, but said that as a sector there was strong evidence that high levels of "at risk " remuneration were proving effective. "The problem with the banks is that they shouldn't have been in growth mode," he said. "But many clean tech firms are taking advantage of a fundamental long term shift [in the economy] and as a result they are confident they should still be in growth mode."