Correcting Campaign-Style 'Carbon Reduction': Lessons and Insights from Europe and the United States

The National Energy Administration listed Energy Service Company (ESCO) contracting as one of the ten key energy-saving and emission-reduction projects in its '12th Five-Year Plan for Energy Conservation and Emission Reduction.' However, with the rapid development of new energy sources, new projects, and new technologies, ESCO—traditionally grounded in retrofitting existing equipment—has gradually been overlooked. Yet high-emission, incumbent, essential projects—such as coal-fired power plants—precisely require ESCO-based approaches to optimize emissions. In the long term, the expanding share of new energy sources is an unmistakable trend, and demand for new projects is evident. In the short term, certain 'high-energy-consuming and high-emission' ("two-high") projects remain essential for basic societal security. Applying campaign-style 'carbon reduction' to such projects will trigger a series of systemic socioeconomic problems; by contrast, adopting ESCO as a pathway for emission reduction holds promise for alleviating the upward pressure on energy costs that green development faces in the near term. IV. From the perspective of corporate reform: linking executive compensation to phased, progressive carbon emission management. Enterprises constitute the largest carbon-emitting entities in society; their emission-reduction performance directly affects national and even global decarbonization progress. How to enhance enterprises’ motivation to reduce emissions—and how to ensure enterprises achieve scientifically sound 'carbon reduction'—are two major challenges confronting today’s society. Yet, as recommended by foreign experts, incorporating corporate carbon emission performance into executives’ compensation structures can exert a positive influence on corporate emission reduction. In August 2021, Friso Van der Oord, Senior Vice President of the National Association of Corporate Directors (NACD) in the United States, published an article titled 'Tying CEO Pay to Carbon Emissions Works. More Companies Should Try It' on CNN. The article outlines the current state of executive compensation and corporations’ general attitude toward carbon reduction. Due to incentive mechanisms such as stock options, executives’ incomes far exceed average corporate wage levels; yet whether such high incomes are explicitly tied to corporate social responsibility remains institutionally undefined in many companies. Evidence shows that linking executive compensation to carbon reduction not only enhances the value of executive income but also helps enterprises better fulfill their social responsibilities. MSCI’s research in the first half of 2021 indicated that while stock market investors respond slowly to corporate efforts in proactive emission reduction, their reaction is nonetheless positive. Moreover, the article cites several cases where linking executive pay to carbon emission performance yielded favorable outcomes. For instance, Valero Energy incorporated ESG performance into its executives’ annual incentive bonuses, accounting for 18% of the total. Shell plc declared in 2018 that it would link its medium- and long-term emission-reduction targets to executive compensation, encouraging both internal operations and customer consumption of its products to minimize carbon emissions. Subsequently, both companies experienced varying degrees of stock price appreciation in secondary markets. Against the backdrop of carbon neutrality and China’s current corporate reform landscape, incorporating corporate emission-reduction performance as one metric for evaluating executive compensation is a reform initiative China should vigorously advance.

The Greedy Pyramid: When Executive Bonuses Outlive the Company

The Distortion of Contractual Spirit: Executive compensation contracts often include 'golden parachute' clauses, guaranteeing excessive severance payments even after managerial failure. For example, Joseph Gregory, COO of Lehman Brothers, walked away upon departure with $35 million worth of stock—a clause that effectively functions as a 'get-out-of-jail-free card' issued by management to itself. Monopolization of Information as a Weapon: Prior to the 2008 subprime mortgage crisis, Lehman executives used the 'Repo 105' accounting maneuver to remove $50 billion in debt from their balance sheets. Such financial sleight-of-hand deceived regulators and simultaneously deprived ordinary employees of risk-related information. II. Three Drivers Behind Compensation Inversion (1) Group Psychology of Self-Enrichment Through Power British psychologist S. Alexander Haslam found that when a group coalesces into an 'elite clique,' members develop an 'entitlement illusion.' Of Lehman’s nine board members, six were alumni of Harvard or Yale—an excessively homogenous network more prone to mutually reinforcing, self-serving compensation decisions. This mirrors how departments at Germany’s Deutsche Bundesbank shirked responsibility during systemic failures: each assumed 'the system should prevent errors,' yet none felt personally accountable for the system. (2) Perverse Evolution of the Principal-Agent System According to principal-agent theory, professional managers should act in shareholders’ interests. In reality, however, CEO-to-median-employee compensation ratios at S&P 500 firms ballooned from 20:1 in 1965 to 344:1 in 2023. This resembles a patient hiring a doctor who continually transfuses blood into himself while letting the patient bleed out. (3) Vicious Cycle of Social Comparison Behavioral economics confirms that executive pay is essentially a 'peacock-tail contest.' When Morgan Stanley CEO James Gorman received a $30 million annual salary, Citigroup CEO Jane Fraser felt compelled to secure $35 million to demonstrate equivalent worth. Such competitive benchmarking spawned absurdities like Silicon Valley Bank CEO Greg Becker cashing out $3.6 million in stock just before the bank’s 2023 collapse. III. Pathways Toward Resolution Contractual Restructuring: Royal Dutch Shell links executive bonuses to carbon emission targets—a 'social performance wager' model worthy of emulation. Information Equity: German legislation—the Executive Compensation Disclosure Act (Vorstandsvergütungs-Offenlegungsgesetz)—requires publicly listed companies to disclose executive-to-employee pay ratios, compelling Volkswagen to tie management bonuses to employee wage increases.