The bonus has had a bad name since the beginning of the financial crisis. The association with bankers who take great risks in order to win their ‘prize’ is quickly made. But variable rewards can also have a purpose other than to increase profits. The reward for top managers increasingly depends on the steps they take to combat climate change. The only question is: does it really work?
According to Dutch newspaper Het Algemeen Dagblad, bonuses are increasingly being used to halt climate change. For example, under pressure from shareholders, Shell will link employee remuneration to CO2 reduction in 2020. The BP oil group is also looking into this possibility. Even though this sounds promising, the fossil industry did certainly not initiate this movement. Almost half of the large European companies already link the rewards of top executives to concrete measures to combat climate change, according to a study by Carbon Disclosure Project (CDP), an advisory organisation in the field of the environment. Since 2009, the Dutch chemical group DSM has been linking the variable remuneration of the top to sustainability objectives, including the reduction of CO2 emissions.
According to Robert Dur, Professor of Economics of Incentives and Performances at Erasmus School of Economics, top managers are sensitive to these kinds of bonuses. He believes that a climate stimulus in the form of rewards is a good idea. ‘For years there has been a one-sided focus on profit maximization. This sets a new target for shareholders. By linking climate to remuneration policy, they indicate that they mean business,’ says Dur. ‘And climate change is thus automatically put on the agenda for each annual meeting; after all, the top rewards are always discussed there.’
Dur believes that the climate bonus is the future. ‘I expect that we will see such a CO2 incentive in more and more companies in the coming years. For a long time we have all looked at the government when it comes to environmental policy, but now shareholders are also taking their responsibility.’
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The full article in Het Algemeen Dagblad, 23 July 2019, can be found here (in Dutch).