Incentives for long-term value creation for board members

A growing number of companies are taking into account the significant opportunities and risks posed by sustainability issues in their corporate strategy. How consistently the strategy is implemented in general, and also in relation to sustainability in day-to-day operations, is closely linked to a comprehensive and effective governance approach. Among other things, remuneration-related incentives play a key role in this approach.

On the one hand, the board of directors sets the strategic course for sustainability and, on the other hand, should contribute to ensuring that this course is adhered to in its daily decisions. Anchoring the key strategic goals in the remuneration of the board of directors and, where applicable, also of senior executives can be an effective incentive to stay on course. This applies to a company's key economic goals as well as its sustainability goals.  

The system of executive board remuneration is an important aspect of corporate governance for a company's shareholders. For the English-language report ‘Incentivising long-term value creation’, data from 375 listed companies in 15 countries was evaluated and examined to determine the extent to which sustainability criteria are already integrated into executive remuneration. The remarkable result: this is already the case for an impressive 78 per cent of these companies. 

• 88 per cent of companies that link the remuneration of their board members to sustainability targets align these with ESG issues that are relevant to their business. These vary greatly from country to country.
• The ESG targets that are incorporated into executive remuneration most frequently relate to climate change, for example reducing greenhouse gas emissions, and to the company's own workforce: employee engagement, proportion of female executives, accident rate.
• Of the 274 companies that measure the performance of their executive board based on sustainability-related targets and provide information on how these are incorporated into variable remuneration, 37 per cent include ESG targets in both short-term and long-term incentives.  Twenty-three per cent include such targets only in long-term incentives, and the remaining 40 per cent use them exclusively in short-term incentives. 

How to integrate sustainability indicators into executive board remuneration:

The companies whose data was analysed for this study are the 25 largest companies based on market capitalisation in June 2024 from each of the following 15 countries: Australia, Austria, Belgium, Canada, China, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, the United Kingdom and the United States. The study was conducted in July and August 2024.

The data analysed comes exclusively from publicly available information: the 2023 annual reports and, where necessary, the remuneration reports, sustainability reports and websites of the companies.