Coro’s Blog: On Purpose

A guest post by compensation expert, Margot Campbell:

If you’re a corporate board member, an executive, a compensation expert or an HR advisor – this report is for you.

Coro Strandberg’s leading-edge report, Sustainable Pay: How TSX 60 companies compensate executives for sustainability performance examines the linkage between executive compensation and sustainability performance. This unique analysis based on 2011 data, shows that only 43 per cent of TSX 60 companies bonus for sustainability performance and none bonuses executives for long-term sustainability performance. Yet, growing evidence suggests that companies that invest in sustainability practices, including linking sustainability metrics to executive pay, outperform competitors. Strandberg’s findings will help pave the way for the future development of universal standards and ultimately create a roadmap for new directions in executive compensation and sustainability.

Here’s who will benefit from reading this report:

Boards and compensation committees will:

• Learn about emerging sustainability and compensation trends.
• Be equipped to design enhanced incentive packages going forward.
• Understand how the right combination of sustainability metrics (in addition to current financial metrics) can enhance sustainability/pay practices.
• Discover a new way to increase shareholder value for investors.

Boards/compensation committees will get a snapshot of the 2011 sustainability compensation practices of 60 public companies. The report also provides the baseline to help boards and compensation committees enhance sustainability practices to better manage risks and create opportunities from emerging trends to maximize future performance.

Executives will:

• Be prepared for a potential new focus by boards and compensation committees on sustainability pay linkages.
• Learn how metrics associated with their own pay may shift to a greater focus on sustainability measures.
• Be equipped to support board and compensation committee dialogue and questions regarding sustainability pay linkages and future trends.

This report will give executives a better understanding of how metrics associated with their own pay will eventually move towards a greater number and weighting of sustainability measures and, over the long run, shift the existing mindset away from the traditional financial focus. In the short-term, it will prepare executives for any questions boards or compensation committees might have about trends in this area. It also will allow them to initiate dialogue at the board level before questions are raised by the board.

Compensation advisors will:

• Get timely data and trends.
• Be prepared for information requests from boards or compensation committees regarding sustainability pay practices.
• Learn how to complement traditional financial/business metrics with a mix of sustainability metrics.

The information this report synthesizes from the sustainability pay practices of the TSX 60 companies will help compensation advisers construct better benchmarks to improve an organization’s competitiveness and, ultimately, its bottom-line.

HR advisors will:

• Learn about emerging sustainability pay practices.
• Anticipate new metrics and weightings that may evolve in their organizations or in competing companies.
• Be equipped to proactively introduce this emerging trend and initiate dialogue with senior management and boards or compensation committees.

The study provides HR advisors with up-to-date information about sustainability pay practices so they can be ahead of the curve with respect to board, compensation committee and/or executive requests and even kick-start the dialogue.

As Toby Heaps (co-founder and CEO of Corporate Knights, the company for clean capitalism) concludes in the report’s foreword, readers will “undoubtedly find Strandberg’s first-of-its-kind systemic study into the sustainable pay practices of TSX 60 companies a welcome injection of coherence. . . While sustainable pay is still a wild west, this report contains many sensible recommendations for harnessing its power to build better companies and a better world”.

Further, Mr. Heaps rightly observes that “. . . pay remains a powerful motivator. What we pay people to do really matters and is at the absolute core of corporate governance. So it stands to reason that we should make sure we are paying people to do what really matters.” The findings of this timely, one-of-a-kind study definitely will enlighten all stakeholders about how to pay executives to do what really matters.