Green is good
I often look at the results of a survey and ask myself “is this good or not?” “
This week’s PwC study on executive compensation and its link to ESG performance is a case in point. The fact that 58% of companies now link executive compensation to their performance on various ESG metrics seems like a welcome step forward, but then you ask yourself, “What the hell are the other 42% thinking about?” “
There is a great deal of fascinating and conflicting research on the role of compensation and rewards systems in driving business performance and change programs.
On the one hand, it’s hard to see how a modern business competes in the war for talent without a generous incentive program, and as such it stands to reason that if you want to improve environmental performance, you have to reward the people who provided it. On the flip side, there are legitimate questions about whether bonuses really work to motivate a workforce and many horror stories about how they can create perverse incentives and encourage employees to focus on narrow performance measures rather than large strategic goals.
It is possible to imagine how requiring business leaders to meet ESG goals to get their full bonus could help boost companies’ decarbonization programs. But similarly, if programs are poorly structured or if only a small proportion of total incentives are tied to environmental performance, there is always a risk that ESG considerations are overlooked.
The PwC study also shows that only around a quarter of top companies link bonuses to emissions targets, while ESG measures only account for around 16% of total bonuses paid and 20% of incentive plans. long term. Short-term financial performance is often the dominant consideration.
However, one thing is clear here: a trend is on and there is no sign that it is weakening. In 2020, only around 46% of companies surveyed associated bonuses with ESG performance, a year later they reached 58%. As all listed companies are expected to soon be faced with the requirement to publish a net zero strategy and pressure from employees, customers and investors increases, it looks like the green bonuses are here to stay.
The big challenge is whether companies can develop incentive programs that actually deliver the decarbonization they want to see.