Despite conflicting messages about climate change from U.S. government leaders, sustainability is getting more and more attention at American companies. Shareholders are ratcheting up their demands on environmental and social issues. Consumers are registering their concerns about how companies make their products. And talented Millennial employees are voting with their feet by leaving laggard companies behind. Meanwhile, new technologies are making it easier for sustainability investments to pay off in the middle to long term.
It’s Time to Tie Executive Compensation to Sustainability
It worked for quality control in the 1980s.
August 17, 2017
Summary.
In the 1980s, when quality became a significant issue for manufacturers, many of them added quality metrics to their executive compensation plans. Over the next decade, quality levels improved substantially. It’s time for companies to start doing the same thing for sustainability. Companies should tailor their sustainability efforts to their commercial priorities. For example, Coca-Cola devotes many resources to creating cleaner water supplies in developing countries. And not every company should expect to add sustainability to its core compensation metrics, at least not right away. Only those with clearly articulated business cases and specific plans for improvement should take that step. From what we’ve seen, most companies haven’t yet done the work to get there. Without well-defined metrics tied to concrete plans, sustainability becomes a vague goal that’s easy for executives to game — often with unintended consequences. But for those that are ready for the concrete commitment, it can pay off in long-term market leadership.