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The Complexities of Connecting Executive Bonuses to Sustainable Efforts

The SSC Team February 7, 2019 Tags: , , , , , , , , , , , , , Strategic Sustainability Consulting No comments
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https://hbr.org/2018/11/how-to-tie-executive-compensation-to-sustainability

 When it comes to doing the right thing, wouldn’t it be great if everyone jumped all in just because? Unfortunately, we’ve seen that that is certainly not the way green efforts have worked in the past.

 

While a number of large corporations are making good efforts toward greener practices, the way these efforts should be rewarded when it comes to a traditional bonus or increased compensation is hard to define.

 

In an exploration of how to tie executive compensation to sustainability, Seymour Burchman noted that deciding which elements of sustainable practices for that organization have priority is key and those goals could be linked to a pay incentive.

 

Typically compensation committees would start by tying bonuses or other long-term incentives to goals that relate to compliance and risk management. This tactic might be acceptable for some investors, but it may take too much focus off of the company’s core mission.

 

So, where to begin?

 

Burchman suggests that bonuses should depend heavily on executives’ success in engaging the company in the big strategic picture that correlate with sustainability. If they can motivate their team members to go on the offense when it comes to sustainable efforts, that in turn can help pull sustainability from the edges of the business model into the center.

 

Even though it is clear that not every company can tackle major sustainable initiatives right now, the opportunities to pursue them is growing fast. In a survey by the UN and Accenture, 63% of executives said they believe sustainability will cause major changes in their business over the next five years.

 

Taking these changes into consideration requires a company’s board to engage in a different way of thinking about what will make their company increasingly sustainable while also expanding those efforts when it comes to suppliers and customers.

 

As these goals are established and then connected to executive incentives, it’s vital that directors make sure that to avoid any negative consequences that may come with an attempt to meet said goals. It’s also imperative that directors remain focused on creating a reasonable number of sustainability goals that deliver the most value. Value that can, in term, be used to energize executives and provide benefits for other stakeholders and the broader community.

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