Growing number of sustainability themes linked to executive compensation

Follow-up research by KPMG shows that a growing number of companies are linking sustainability goals to executive pay. In May of  2024 KPMG Netherlands already showed that large companies give top executives bonuses for social, environmental and responsible governance performance. The new survey, with 375 listed companies from 15 countries, shows that sustainability is playing an increasingly important role in board remuneration structures worldwide. Among Dutch companies, the percentage of companies using the targets (88%) remains the same, but the number of linked topics has increased significantly.

Summary:

• 78% of the 375 companies surveyed use sustainability measures in calculating the compensation of top managers.
• In the Netherlands, 88% of the 25 companies surveyed implement this policy. The number of sustainability topics being linked to compensation has increased, with a particular emphasis on long-term objectives.
• The most common sustainability goals focus on climate change, specifically greenhouse gas emissions, and the company's workforce, with an emphasis on female leadership and injury rates.
• 88% of companies that integrate sustainability goals into executive board compensation align these with relevant sustainability topics for their business.
• There are significant regional differences. EU countries show a higher average adoption of sustainability-related compensation compared to non-EU countries.

In the Netherlands, 88% of companies link sustainability goals to the compensation of executives, which is higher than the global average of 78%. This highlights the strong focus on sustainability within Dutch companies. 88% of these companies align these rewards with relevant sustainability topics for the business. The most widespread sustainability goals relate to climate change and the company's workforce, often aligned with ESG topics important to the business. The inclusion of topics such as water, pollution, and biodiversity still lags behind, both in the Netherlands and other countries.

More and more companies are linking sustainability to long-term incentives and a broader range of topics. Previously, the focus was mainly on their own staff and climate. Vera Moll, Director of Sustainability Reporting and Strategy, says: "We see significant growth among Dutch companies that are increasingly focusing on long-term incentives. This is a positive development as sustainability transformations require a long-term vision and commitment from management. However, there is still much to be gained; of the 25 companies, 8 have no link to long-term incentives at all."

Companies in the EU use sustainability measures more often than companies outside the EU. Notably, the United Kingdom and Australia respectively rank second and third among the top 25 companies. This demonstrates that companies outside the EU regulatory requirements are also taking an ambitious approach to firmly embed sustainability in their organization. Despite the alignment with material sustainability topics by both Japan and the UK, non-EU countries are on average less aligned than those within the EU. On average, 7.5 companies in non-EU countries fully align material sustainability topics and executive board compensation measures, compared to 8.7 companies in EU member states.