Incorporating sustainability aspects into incentive schemes can help boost motivation among executives and employees regarding the topic of sustainability. In particular, incentives can be used to systematically track and not lose sight of sustainability goals.
For example, Germany’s Act on the Appropriateness of Management Board Remuneration (VorstAG) entered into force in 2009, providing “orientation on sustainable and long-term corporate success”. Some companies have taken the implementation of this rule as an opportunity to anchor qualitative criteria, such as increasing attractiveness as an employer, under the definition of “sustainable and long-term success”. Quantitative goals are likewise increasingly finding their way into incentive structures, for example when it’s a question of boosting resource productivity or reducing negative environmental impacts by factor x by point in time y. This is a promising way to make sustainability a practised part of the corporate strategy.
What needs to be borne in mind?
Please bear in mind that the incentive schemes must be directly related to your company’s sustainability goals. Target agreements based on environmental and/or social sustainability aspects are of particular interest here, such as an increase in the proportion of investments brokered with a sustainability component or participation in professional development opportunities on the topic of diversity. You may also present incentive schemes related to employees’ involvement in innovation management or a suggestion scheme insofar as these are explicitly linked to the sustainability goals.
State whether there is a remuneration system or some other non-monetary incentive scheme for employees and executives into which the sustainability goals have been incorporated and, if not, whether such a thing is planned.
Explain how achievement of the goals agreed upon with the employees and executives is monitored and by which bodies.
State whether sustainability goals already form part of the evaluation of the top managerial level (board/managing directors) conducted by the monitoring body (supervisory board/advisory board) and, if so, which ones.
Incentives can be financial in nature, such as bonuses for executives and employees which are tied to the achievement of specific goals. How sustainability is handled within a company can also be markedly improved by incorporating sustainability aspects into the design of existing non-monetary incentives (e.g. internal recognition) and by creating new incentives such as leave granted for voluntary work, idea management, professional development opportunities, etc.
Key Performance Indicator GRI SRS-102-35: Renumeration policies
a. Remuneration policies for the highest governance body and senior executives for the following types of remuneration:
i. Fixed pay and variable pay, including performance-based pay, equity-based pay, bonuses, and deferred or vested shares;
ii. Sign-on bonuses or recruitment incentive payments;
iii. Termination payments;
v. Retirement benefits, including the difference between benefit schemes and contribution rates for the highest governance body, senior executives, and all other employees.
b. How performance criteria in the remuneration policies relate to the highest governance body’s and senior executives’ objectives for economic, environmental, and social topics.
Key Performance Indicator GRI SRS-102-38: Annual total compensation ratio
a. Ratio of the annual total compensation for the organization’s highest-paid individual in each country of significant operations to the median annual total compensation for all employees (excluding the highest-paid individual) in the same country.