2011-6-22   Source: WBCSD

More and more companies are tying performance related pay to the progress made on sustainability goals, from energy and carbon reduction, to ethical leadership to recognition of all around best practice.

Sustainability issues are increasingly seen as real business risks and opportunities, and pay and bonuses are a powerful tool to drive performance. Although it is still a minority practice, setting and rewarding sustainability KPIs sends a strong message to everyone from investors, to the C-suite, to shopfloor workers that the company is serious about its sustainability commitments.

WBCSD's People Matter Project's new Issue Brief on Reward draws on the experience of companies that are pioneering in developing their own ways to reflect sustainability in pay, bonuses and non-financial rewards. The most common approach, taken by Shell, TNT, DSM, NovoNordisk and Natura is to use a balanced scorecard system, which gives each executive their own objectives tied to the company's strategic financial and non-financial objectives. Other companies have a single corporate measure of performance. For the German chemical company, Evonik this is based on a basket of performance measures linked to their three pillars of sustainability; economic, social and EHS. Others adopt external benchmarks. Akzo Nobel is just one of a number of Dutch companies that uses the Dow Jones Sustainability Index as their benchmark of sustainability performance for the purpose of rewarding senior managers.

A few companies have used incentives to focus executive's minds on a single sustainability priority for the business. The US-based manufacturer of household products SC Johnson has for some time linked executive pay to a robust measure of how well product executives are doing at greening their product lines and packaging.Siemens, the German industrial giant focused rewards on integrity leadership, as part of an overall redevelopment of their compliance systems; holding senior managers accountable not just for basic legal compliance but for creating a culture of anti-corruption throughout their business unit.

The decision to integrate sustainability into executive pay reflects a maturity of the issues within business. In order to reward sustainability performance the companies have first set clear and measurable goals, with commitment from the top and communication across the entire organization. They had to take sustainability performance measures beyond the annual 'CSR' report and integrate them into the real time reporting and accountability systems are needed keep performance on track.

Chris Librie, Director of Global Sustainability at SC Johnson says integrating sustainability into the incentives and appraisals of senior managers has been crucial to advancing greener product development "When we started we didn't have it all figured out, but realized that we had to do something. Making it explicit and incentivizing performance had a great benefit. We would not have been able to achieve this if it had not been part of the objectives of senior people."

People Matter is an ongoing learning project of the WBCSD. It provides an opportunity through webinars, meetings, issue briefs and case studies for practitioners to share learning on the links between people management and sustainability performance.