Giuseppe van der Helm Executive Director VBDO / President Eurosif - PowerPoint PPT Presentation

Principles for linking sustainable goals to executive incentives Giuseppe van der Helm Executive Director VBDO / President Eurosif Amsterdam, 31 mei 2011

History • 2006: VBDO, HayGroup and DHV consultants study the link between sustainability and remuneration for the first time • 2009: Out of 50 AGM’s visited only 7 companies link part of the variable remuneration to non- financial criteria • Problem: implementation • 2010, 2011: VBDO theme at AGM’s

Bonus: how much or why? • Everyone always talks about amounts... • But motivation is more relevant: • What behaviour will you reward? Advantages sustainable based bonus: • Formulate SMART objectives • Expand/ involve the whole organisation • Report about achievements

Input • VBDO: competence CSR/SRI • Best practices • Stakeholder interviews • HayGroup: competence remuneration • DHV: competence sustainability

How to reward sustainable behaviour? 1. Discretionairy of non discretionairy discretionairy Non discretionairy 2. Phase CSR Performance data absent Performance data available 3. Overall indicator 3. Set target for of specific indicator? achieving next phase 4. Targets

Discretionairy or non-discretionairy Discretionairy: qualitative assessment / Evaluation afterwards: – Eg dealing with issues – Eg behaviour Non discetionairy: assessment on quantitative, pre-set objectives – Eg CO2 / tonne – Market share sustainable products

Determine sustainability phase • Important for availability CSR data • Only with mature companies are sound and ample CSR data available

Companies with sufficient CSR data: Choose between: • Overall indicators (available and fitting) • Indicators for specific sustainability issues (choose most material/ relevant)

Remuneration elements BASE SALARY SHORT TERM Fixed and guaranteed INCENTIVES (STI) annual income Variable, performance related income based on short term (one year) goals. PERFORMANCE INCOME BENEFITS LONG TERM Fringe benefits INCENTIVES (LTI) Variable, performance related income based on long term ((> 1 year) goals.

Remuneratie elements A B C Base Salary Bonus Long Term Benefits Incentives Performa Fee Employee nce D E F G Touched Performance Performance Opportunity Entrepreneur Oriented Driven Driven

Result areas FINANCIAL OPERATIONAL PERSONAL OBJECTIVES OBJECTIVES OBJECTIVES FITNESS OF THE STRATEGIC PLAN SHAREHOLDER COMPANY VALUE SUSTAINABILITY INNOVATION MARKETSHARE … … …

RESULT AREAS TERM 70 % 30 % (VARIABLE PAY) FINANCIAL OBJECTIVES PERSONAL OBJECTIVES LONG TERM (LTI) 100 % SHAREHOLDER VALUE

Long term incentives SHORT TERM (VARIABLE PAY) LONG TERM (LTI) SHORT TERM (VARIABLE PAY) LONG TERM (LTI)

VBDO position Research shows that it is possible to link the bonus to CSR objectives! • 2010 Sustainable Remuneration Guide is published • 2010 and 2011 theme at AGM’s • Listed companies are asked to implement

Conclusion • At least one third of the bonus should be based on sustainable criteria • 60% of the variable pay should be aimed at achieving long term objectives • Bonus should not exceed 100% of the fixed annual income • Think about internal gap

VBDO giuseppe.vanderhelm@vbdo.nl +31 435 532 653 +31 641 600 703