Mike Wolanin | The Republic Cummins CEO Jennifer Rumsey gives the keynote speech during the Greater Columbus Economic Development Corporation’s annual meeting at The Commons in Columbus, Ind., Friday, Aug. 16, 2022.
Cummins Inc. shareholders will consider a proposal to tie executive pay to greenhouse gas emissions reductions during the company’s annual meeting on May 14, according to regulatory filings.
The proposal, submitted by As You Sow on behalf of Warren Wilson College, would ask the Cummins Board of Directors to disclose a plan to link executive compensation to greenhouse gas reductions in accordance with the Paris Agreement across the company’s full value chain, according to a copy of the proposal.
The Paris Agreement is an international treaty on climate change adopted in 2015 that seeks, among other things, “to limit the temperature increase to 1.5°C above pre-industrial levels,” according to the United Nations.
As You Sow is a non-profit foundation that seeks, among other things, to promote corporate social responsibility through shareholder advocacy, according to its website. Warren Wilson College is a private liberal arts college in North Carolina.
“While Cummins’ 2023 proxy statement commends its CEO’s role in advancing Cummins’ decarbonization strategy, there is no evidence of a direct payout linked to climate change performance,” according to the text of the proposal. “…Cummins states its CEO is entitled to a monetary incentive for advancing Cummins’ PLANET 2050 goals, which are partially related to reducing emissions. However, Cummins fails to provide a quantitative emissions-reduction incentive that has a specified payout percentage.”
The Cummins Board of Directors, for its part, has recommended that shareholders reject the proposal, arguing in a proxy statement filed with regulators that the proposal’s approach “is not in the best interest of the company and its shareholders at this time, particularly in light of the actions Cummins is already taking to address climate change and sustainability.”
The board highlighted the company’s PLANET 2050 and Destination Zero strategies, including the aspirational target of carbon neutrality by 2050.
“While we are committed to furthering our sustainability efforts, our core values guide how we approach fulfilling that commitment,” the board said in a statement in opposition to the proposal. “As such, we believe it would be irresponsible to commit to the proponent’s requested actions before completing the necessary foundational steps, many of which were underway before we received the proponent’s proposal.”
The board further argues that the proposal “unduly interferes” with its Talent Management and Compensation Committee, which is entirely comprised of independent directors and “requires flexibility to determine the appropriate metrics for our executive compensation program.”
“Our shareholders’ interests are best served by maintaining the Committee’s flexibility to determine the metrics that are best suited to drive environmental progress in parallel with sustainable, long-term growth,” the board said in the statement of opposition. “As such, we do not believe it is in the company’s or our shareholders’ best interests to commit to the actions in the proposal, and we recommend that our shareholders vote against it.”
Last year, Cummins shareholders rejected a similar proposal on linking executive pay to climate performance during the company’s annual meeting.
However, this year’s annual meeting comes a few months after Cummins reached a settlement with federal and California regulators to resolve allegations that the company installed software on certain RAM pickup truck engines that thwarted emissions rules in violation of the Clean Air Act.
As part of the settlement, Cummins has agreed to pay a $1.675 billion civil penalty — which the government said is the largest civil penalty ever under the Clean Air Act — recall 600,000 RAM trucks and fund emission mitigation projects. The cost of the projects and recall are estimated at more than $325 million, bringing the total penalty to around $2 billion.
The engines in question were made at the Cummins Mid-Range Engine Plant in Walesboro, Cummins officials told The Republic previously. Cummins, which did not admit wrongdoing in the settlement, has said that it fully cooperated with regulators and “has seen no evidence that anyone acted in bad faith.”
The civil penalty did have a financial impact on current Cummins Chair and CEO Jennifer Rumsey and former Cummins Chairman and CEO Tom Linebarger, according to the company’s proxy statement.
The Talent Management and Compensation Committee decided to reduce Rumsey’s 2023 bonus by 50% in light of the settlement agreement with environmental regulators, according to the proxy statement. That reduced her 2023 bonus from about $4.46 million to about $2.23 million.
In addition, the committee completely eliminated Linebarger’s 2023 bonus. His target annual bonus in 2023 was $1.725 million, though the amount he would have otherwise received could have been higher than the target amount.
Besides considering the proposal to tie executive compensation to greenhouse gas emissions reductions, Cummins shareholders also will vote on a slate of nominees for the company’s board of directors, among other things.
