G3: Executive Compensation
Corporations have long incentivized executive performance by tying compensation to financial metrics. The growing business case for sustainability strengthens the argument for linking executive compensation to sustainability performance. By tying executive compensation to sustainability metrics—to greenhouse gas (GHG) reduction targets and energy efficiency goals, for example—companies can boost both financial and sustainability performance.
Leading companies in the highly regulated Utilities sector have a longer history of linking improved environmental and social performance—specifically compliance-driven targets—to executive compensation. Top performing companies in this sector are also being innovative. For example:
- Exelon has an innovative “long-term performance share award” that rewards executives for meeting non-financial performance goals, including safety targets, GHG emissions reduction targets and goals engaging stakeholders to help shape the company’s public policy positions.
- Xcel Energy ties executive compensation to specific performance measures, including environmental leadership. Most notably, Xcel links compensation to goals achieved in “demand-side management,” which are reductions in energy consumption by its customers.
Since 2008, Intel 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.
In this video, Suzanne Fallender, Director of CSR Strategy and Communications at Intel, talks about the importance of tying employee and executive compensation to specific environmental performance goals as a way to engage employees on sustainability issues.
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