Etsy IPO: B Corp, but are they really any different?

Fred WhittleseyConscious Compensation: The Impact Compensation Blog

The B Corp world is buzzing about Etsy’s S-1 filing, and the first B Corp IPO.  I, as a compensation expert, always wonder if B Corp’s really pay their people any differently and consistently with the values of B Corps and Conscious Capitalism.   Here’s Etsy’s necessary disclosure about their B Corp status:

We are a Certified B Corporation. The term “Certified B Corporation” does not refer to a particular form of legal entity, but instead refers to companies that are certified by B Lab, an independent nonprofit organization, as meeting rigorous standards of social and environmental performance, accountability and transparency. B Lab sets the standards for Certified B Corporation certification and may change those standards over time. Our reputation could be harmed if we lose our status as a Certified B Corporation, whether by our choice or by our failure to meet B Lab’s certification requirements, if that change in status were to create a perception that we are more focused on financial performance and are no longer as committed to the values shared by Certified B Corporations. Likewise, our reputation could be harmed if our publicly reported B Corporation score declines, if that created a perception that we have slipped in our satisfaction of the Certified B Corporation standards.

OK, so what is Etsy’s current focus on financial performance?  Given the broad social concerns about executive compensation, let’s look at how their executives are paid:

Prior to 2014, we did not have a regular annual cash incentive bonus program for our executive officers. In 2014, our compensation committee approved an annual cash incentive plan in which certain of our employees, including our named executive officers, participated. 

The annual cash incentive plan was funded based upon the satisfaction of company-wide Adjusted EBITDA margin and net revenue goals. In general, the overall funding available for all bonus payouts could range from 0 percent to 200 percent based solely upon our achievement of these goals. Because we exceeded each of our Adjusted EBITDA margin and net revenue goals for 2014, the annual cash incentive plan was funded at 110% of target. 

Individual bonus payouts were initially established by applying that same percentage to each participant’s target bonus. Each individual’s percentage could then be increased or decreased at Mr. Dickerson’s discretion (or, for Mr. Dickerson, our board of directors’ discretion) based upon his (or, for Mr. Dickerson, our board of directors’) consideration of the participant’s individual performance during the year against goals determined by the individual and Mr. Dickerson (or in the case of Mr. Dickerson, our board of directors). The individual goals included items such as ensuring we met our company financial goals, contributing to specified strategic priorities (such as international growth), leading our public offering process and preparing us to become a public company.

For annual incentive compensation, which could be significant (and was) relative to base salary, the measures were 100% financial.  And increased from there on a discretionary basis.  From a B Corp standpoint, and the conflicting text in their S-1:  Fail.

Next, long-term incentives. I’ll save you reading time:  100% stock options.  Like most, but not all, IPOs over the past few years.  100% stock price (i.e., shareholder-focused, not stakeholder-focused). Fail.

For me, Etsy gets an “F” in being a B Corp when it comes to the stakeholder group known as employees.  Their executive compensation program reads like every lawyer-driven, shareholder-focused program in every other IPO and is not a sustainable set of incentives consistent with a B Corp mission.

I don’t know how this will affect their B Corp assessment score of 105 , but it should.  Read about Conscious Compensation® and then decide. But let’s not wave the B Corp pom-poms until we actually have read the details of how a company runs its business, especially with respect to the important stakeholder groups not included in the executive profit-based incentive programs.