Pay Tied to Sustainability
While sustainability is often categorized as a long-term strategy to mitigate both corporate reputational and financial risk, a small but growing number of companies are beginning to tie environmental goals to executive compensation. That means leaders of participating firms now must weigh operational variables such as greenhouse gas emissions against short-term financial outcomes.
In a report published by Sustainalytics and the sustainability nonprofit Ceres, 24 percent of the 613 largest publicly traded companies have now tied sustainability to executive compensation, up from 15 percent in 2012. “At the end of the day, people are motivated by their pocketbooks,” says Veena Ramani, Ceres senior director of corporate programs. “I think investors have come to recognize that if you want companies to take this stuff seriously, you’re going to have to link it to people’s compensation.”
The shift is part of a broader push to tie corporate social responsibility areas such as environmental, social and governance metrics, as well as labor and local community impacts, to core business models.