Bonuses for sustainability often target easily achievable goals

Amstelveen, 17 May 2024 – Research by KPMG Netherlands into whether and how the top 50 Dutch companies reward sustainability performance reveals that most companies pay out bonuses for this category. One in five companies have yet to introduce sustainability bonuses. Bonuses are primarily awarded for the companies’ own results in the field of climate change and diversity in their own workforces, whereas other important sustainability issues such as circularity, biodiversity and human rights are often still overlooked.

The European reporting directive CSRD specifies which information companies must include in their annual reports. This means that listed companies are subject to much more extensive accountability requirements with regard to the environment, people and good governance. However, there is still no clear connection between issues which are defined as being the most important and those for which bonuses are paid. Only a few companies base remuneration on important sustainability issues, such as circularity, biodiversity and human rights. There is also too little focus on how well suppliers are doing in terms of their sustainability goals. These subjects are currently still difficult to measure. 

For example, 19 out of the 50 companies state in their annual reports that the circular economy is an important issue, but only 8 actually pay bonuses related to this area. Mark Vaessen, global head of corporate and sustainability reporting at KPMG: “Ultimately, the policy implemented today in terms of sustainability will have consequences for the habitability of our planet. But it will also influence the financial situation and market value of companies. It is important that companies choose sustainability benchmarks that are truly important for the company. Those benchmarks must also be properly measurable. Only if sustainability performance has fundamentally improved is a bonus justified. This means that challenging but achievable goals must be set for sustainability performance. The report reveals that there is still a lot of work to be done."

At the majority of leading Dutch companies, sustainability performance currently accounts for 20% or less of variable remuneration for executives; financial performance accounts for 80% or more. Vaessen: “If it affects the pay in your pocket, it automatically becomes more important. The level of executive remuneration is an indicator of how well a company’s executives understand the sustainability challenges facing the organization and how seriously they are prepared to tackle them. Shareholders, employees and society look on. In spite of the growing focus on sustainability, this survey reveals that there is plenty of room for improvement in the way companies are integrating sustainability into their remuneration policies for the C-suite."

Only 33% of leading companies reward management on the basis of diversity performance. Moreover, the focus is primarily on the number of women in senior management. Few companies link bonuses to equal remuneration for men and women or cultural diversity. Vaessen: “Currently, the more easily attainable goals are being rewarded. The number of women in senior positions is also easier to measure than working conditions in the supply chain. We do expect companies to start focusing on the latter more in the future. “ 

Of the 41 companies that link executive remuneration to sustainability performance, approximately half (22 companies, or 54%) base bonuses on a combination of short-term and long-term goals. A significant number (12 companies, or 29%) currently base sustainability-related remuneration only on short-term goals of up to a year. Vaessen: "This transformation is a process that will take many years. Remuneration should therefore be based on a long-term vision. That will also ensure financial stability in the long term. At the same time, performance goals for the short term are also needed in order to ensure that milestones are hit, momentum is maintained and progress is achieved."