Linking Executive Pay to Sustainability - 21st June 2012

I wrote about this subject in our October e-newsletter last year, that the volatility of markets had started to force boards to rethink the way senior executives are remunerated, and many began to consider linking incentives to internal company targets instead of shareholder return.

Intel links employee compensation to sustainability results and is doing this for its entire workforce. Since 2008, every employee’s annual bonus is calculated on the basis of the firm’s performance on sustainability measures like product energy efficiency, completion of renewable energy and clean energy projects, and the company’s reputation for environmental leadership.



National Grid’s compensation model shows how to embed sustainability practices into a company’s DNA.  Like Intel, National Grid has tied CEO and other executive compensation to performance on the company’s greenhouse gas (GHG) reduction goals – and these are aggressive goals: an 80% reduction by 2050, with 45% by 2020.



Xcel Energy’s compensation for executive officers is tied to GHG reductions but they go further by disclosing details of the targets and compensation in its annual report, and not just in sustainability reports.  Important here is getting the key information directly to the investment community and secondly, it demonstrates that Xcel sees sustainability as a core business issue.

  This is demonstrating smart practice that will no doubt empower employees throughout the organisation.

Further examples were outlined by Environmental Leader this month in an interesting article covering details of a report from the Conference Board about how US companies are tying executive compensation to sustainability performance.

The Conference Board highlight how sustainability issues are becoming increasingly common in the boardroom, particularly as the volume of shareholder proposals regarding environmental and social policies has grown. One area receiving attention from directors is the link between sustainability performance and executive compensation. The Director Notes discusses corporate directors’ increasing interest in sustainability matters, progress toward a notion of performance assessment that incorporates nonfinancial elements, and companies’ efforts to explain how they link incentive awards to sustainability targets in response to shareholder proposals.

Incorporating nonfinancial elements is a perpetual challenge, one we attempted to deconstruct in the article written by Kate Bennet for those who missed it - here is a link Assessing and Communicating the True Value of Corporate Sustainability Initiatives.

Have a great weekend!

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