G3: Executive Compensation tied to ESG Performance
|CERES ROADMAP EXPECTATION|
|Sustainability performance results are a core component of compensation packages and incentive plans for all executives.|
|Intel's Suzanne Fallender, Director of CSR Strategy and Communications, talks about the importance of tying employee and executive compensation to specific environmental performance goals as a way to engage employees on sustainability issues. Watch the video...
Check out Roadmap in Action for more examples of how companies are implementing the Ceres Roadmap.
HOW ARE COMPANIES PERFORMING?
In The Road to 2020: Corporate Progress on The Ceres Roadmap For Sustainability, we evaluated 600 of the largest U.S. companies on their progress towards meeting the expectations laid forth in the Ceres Roadmap for Sustainability. Using data compiled and analyzed by Sustainalytics, this expectation looks at the assignment of a corporate board member or a board committee with explicit responsibility for sustainability.
Despite such efforts, this evaluation shows that while compensation linkages to ESG performance are gaining support, they are still an anomaly. Of the 600 companies assessed, only seven percent (39 companies) have formally tied ESG performance to executive compensation, while an additional nine percent (53 companies) are making such linkages without explicitly disclosing related targets and weights. There is a huge opportunity for action across all sectors.
Most of the companies that explicitly link ESG performance to executive compensation focus on health and safety and/or diversity targets, but a small number are broadening the scope to include a more complete range of sustainability performance criteria. This is a critical step in developing accountability mechanisms that recognize the interconnectedness between social, environmental and traditional business performance.
A clear trendsetter is Intel which, since 2008, has linked the variable compensation package of each of its employees, including executives, to the company's achievement of environmental sustainability metrics in three areas: energy efficiency of products, reductions in greenhouse gas (GHG) emissions and energy use, and improvements in its reputation as an environmental leader. In the four years since this program started, Intel has reduced energy use by 8 percent and its GHG emissions by 23 percent.
Xcel Energy’s executive compensation package is based on a number of performance measures including not only safety targets, but also environmental performance targets such as increasing the amount of renewable energy available for commercial operation, reducing emissions, improving energy efficiency and integrating new technologies.
To determine incentive compensation for executives and other employees, Campbell Soup uses a "balanced scorecard" that includes sustainability performance metrics. These include energy and water use reductions, increasing recycling efficiency, improving diversity and advancing renewable energy projects. Bonuses for Delta's corporate and divisional executives are tied to performance against the company's annual "Flight Plan," a set of priorities that drive company initiatives. In 2011, the Flight Plan included a goal to “improve fuel consumption per block hour through ground, flight and aircraft initiatives,” demonstrating the company's commitment to reducing its large energy footprint.
Click on a performance tier below to view more information about how companies are performing.