This report summarizes ground-breaking research into how Canadian TSX 60 boards compensate executives for sustainability performance. It contains detailed research and recommendations for harnessing the power of compensation incentives to advance sustainable business practices – otherwise known as “Sustainable Pay”.
Sustainability is an important global business driver and is making its way into corporate boardrooms. Mounting evidence shows firms that invest in improved sustainability practices outperform their competitors. There is growing awareness that emerging sustainability risks can have a material impact on company performance. Recognizing these links, companies increasingly integrate sustainability performance objectives and targets into their performance management systems and adopt sustainable pay policies.
To better understand this sustainable pay trend Coro conducted a review of the degree to which companies listed on the TSX 60 Index adopt sustainable pay practices. This research defines a roadmap for improved practices in sustainable pay.
The study focused on annual and long-term incentive awards that provide financial/monetary bonuses when pre-established corporate sustainability performance goals are achieved. The research covered:
- The decision process. (Who makes the compensation decisions – committees or boards?)
- Sustainability (non-financial) factors included within the annual incentive plan, including the category, metric and weighting.
- Incentive plan eligibility.
- Use of a balanced scorecard approach.
- Sustainability (non-financial) factors included within the long-term incentive plan.
The research shows that sustainable pay is an emerging board practice. The years ahead will undoubtedly witness continued trial and error as companies, their leaders and those who advise them, better understand the right mix of metrics and incentives that can result in enhanced sustainability outcomes – and thus, shareholder value.
