Posts Tagged ‘Executive compensation’

Factoring CSR performance in executive pay

posted by Tara Knight

I stumbled upon an article recently about the summary of the recent removal of Shell from the Dow Jones Sustainability Index (DJSI).

According to the article in The Responsible Investor, Dow Jones and its partner SAM, dropped Shell from the index in September.  DJSI rules allow for elimination of companies from the Index following extraordinary events (for example, BP was removed in June following the Gulf of Mexico oil spill) however, there seems to be no specific reason given for the decision to remove Shell from the index that I have come across. It’s pretty clear that Royal Dutch Shell (in a post on their website) was very surprised by the move too.

Curious, I decided to look up Shell’s most recent Sustainability Report (2009). Sustainable development happens to account for 20 percent of their executive compensation scorecard.  For 2010, the Dow Jones sustainability Indexes assessment of Shell’s performance accounts for half of the sustainable development element in the scorecard for members of the Executive Committee. It’s no surprise that Shell is seriously re-considering this executive bonus program as a result (“Shell to review Dow Jones Sustainability Index as bonus metric after being dumped from benchmark“). Being dropped (unceremoniously) from the DJSI is a serious hit to potential compensation, and there are likely a lot of concerned executives about this event.

What I hadn’t realized (until I dug a bit) is that this is part of a wider trend for Dutch businesses to seriously consider, and link, sustainability performance with senior management compensation packages. In fact, Royal Dutch Shell is one of a number of Dutch companies (including Dutch life sciences giant DSM, and postal operator TNT). According to Sustainable Sourcing this kind of incentive plan was pioneered by Akzo Nobel which based its long-term bonus payment structure according to its position in the Dow Jones sustainability index for chemical companies.

I am now very curious about other companies tying their executive bonus packages with external sustainability indices. Clearly, this kind of association will cause real shifts in decision making around sustainability within organizations. Do you know of North American companies who are experimenting with new models for their senior management compensation packages?