Variable remuneration of executive directors must be linked to achievement of sustainability objectives, group of CEOs writes
"Executive pay must be linked to sustainability objectives", 26 Jan 2022
What happens to a company director’s remuneration when it does not meet the sustainability objectives that the company has set itself? Nothing. Except for a few pioneering companies that have introduced a simple yet effective rule: part of the variable remuneration of executive directors depends on the achievement of sustainability objectives.
This measure, which when it exists concerns large companies, allows us to respond in part to what is often called the “tragedy of horizons”. Sustainability objectives belong in the long term when financial results are monitored quarterly and stock prices are monitored daily.
To give more weight to the long term, it is necessary to integrate it into short-term governance tools. The variable part of the executive remuneration package, which represents a significant part of their total remuneration, is one of them.
The fact that some pioneering companies are doing this is good news. And the results are very positive. This makes it possible to get away from the sometimes contradictory injunctions between financial performance and environmental performance, since the structure of the “bonus” integrates both.
This practice must now be extended to all large European companies.
This is in fact what the study carried out recently by the consulting firm EY for the European Commission highlights, noting that the remuneration package of executive directors should be reviewed to match both long-term and short-term imperatives, thus enabling the creation of sustainable value for the company.
And it is now the right time to implement such a policy, as the European Commission will present its Sustainable Corporate Governance proposal in early February.
Under the impetus of Commissioner Didier Reynders, a measure linking environmental objectives to part of the variable remuneration is under discussion. But it could well disappear, even though it is an important part to translate the European Green Deal into the daily governance of large European companies.
We therefore support such a measure and urge the Commission not to miss this opportunity; as such an opportunity will not be repeated any time soon.
While the World Economic Forum has again this year put climate, extreme weather events and the loss of Nature as the top 3 global risks they are facing, it would be incomprehensible if the future European reform that frames their responsibility does not integrate this new reality.
- Pascal Canfin, Member of the European Parliament, Chair of the ENVI Committee
- Carlos Cordero Sanz, Partner Director, Sustentia
- Pascal Demurger, CEO, MAIF
- Philippe Donnet, CEO, Generali
- Nina Ekelund, Executive Director, Haga Initiative
- Pierroberto Folgiero, CEO, Maire Tecnimont
- Antoine Frérot, Chairman and CEO, Veolia
- Jean-Pierre Hanin, CEO, Cofinimmo
- Katharine Hill, CEO, B Lab Europe;
- Bjørn K. Haugland, CEO, Skift – Business Climate Leaders
- Christoph Klein, CEO, ESG Portfolio Management GmbH
- Gauthier Louette, Chairman and CEO, SPIE
- Juan M. Prieto, Director General, Corporance
- Catherine MacGregor, CEO, ENGIE
- Jean Moreau, CEO Phenix and Co-President of Mouvement Impact France
- Eva Sadoun, Co-founder LITA.co x RIFT and Co-President of Mouvement Impact France
- José Ignacio Sánchez Galán, CEO, Iberdrola
- Philippe Sebag, CEO, Préfon
- Ana Struna Bregar, CEO, CER
- Enrique Tombas, CEO, Suma Capital
- Pierre Valentin, CEO, Ecofi
- Frank van der Vloed, CEO, Signify Europe
- Maarten van Dijk, CEO, SkyNRG
- Victor van Hoorn, CEO, Eurosif
- Eliot Whittington, Director, Corporate Leaders Group Europe (CLG Europe)
- Philippe Zaouati, CEO, Mirova