The challenge of running a sustainable enterprise has taken center stage among shareholders. Last year, for example, Russell 3000 companies received 144 shareholder proposals requesting action on social and environmental issues. Meanwhile, in a survey of 89 institutional investors by Callan, 43% of respondents said they incorporate sustainability factors into their investment decisions — up 21 percentage points from 2013.
How to Tie Executive Compensation to Sustainability
Most leaders won’t prioritize it on their own.
November 12, 2018
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Summary.
The challenge of running a sustainable enterprise has taken center stage among shareholders. The dilemma for directors, however, is determining what aspects of sustainability, or ESG performance, should have priority — and should be linked to pay incentives. Compensation committees often start by tying bonuses and long-term incentives to goals related to compliance and risk management. That approach may please some stakeholders, but it may put the focus on issues far removed from the company’s core mission. A better approach is to have bonuses depend largely, or solely, on executives’ success in tapping big strategic opportunities related to sustainability. By pushing the top team to go on the offense strategically, this change brings the work of advancing sustainability from the periphery of the business to its heart.