Executive directors’ bonuses must be linked with sustainability objectives

Accountancy Europe CEO Olivier Boutellis-Taft has co-signed a letter by MEP Pascal Canfin (Renew Europe, France)  alongside 40 other CEOs. Ahead of the European Commission’s Sustainable Corporate Governance package, the statement calls on the President and Vice-President of the EC to link executive directors’ bonuses with sustainability objectives.

Part of the variable remuneration of executive directors must be linked with sustainability objectives

To the President and Vice-President of the EC, Ms. Ursula von der Leyen and Mr. Frans Timmermans

We are reaching out to you ahead of the publication by the Commission of the Sustainable Corporate Governance package, expected on February 23rd. While we strongly support the Commission’s work on that important proposal, we would like to draw your attention to a specific issue: the director’s duties.

This letter follows up on an initiative carried out in late January by business CEOs and representatives of business organizations, and calling on Commissioners Reynders and Breton to introduce a simple yet effective measure: linking part of the variable remuneration of executive directors to the achievement of sustainability objectives.

This measure, if put in place, concerns large companies, allows us to respond in part to what is often called the “tragedy of horizons”. Sustainability objectives reflect the long term while financial results are monitored quarterly and stock prices are monitored daily. To give more weight to the long term, it is necessary to integrate it into short-term governance tools. The variable part of the executive remuneration package, which represents a significant part of their total remuneration, is one of them.

Today, it is a fact, some pioneering companies are already doing this, it is good news. And the results are very positive. This makes it possible to get away from the sometimes contradictory injunctions between financial performance and environmental performance, since the structure of the “bonus” integrates both.

This practice must now be extended to all large European companies. This is in fact what the study carried out recently by the consulting firm EY for the European Commission highlights, noting that the remuneration package of executive directors should be reviewed to match both long-term and short-term imperatives, thus enabling the creation of sustainable value for the company. Now is the right time to implement such a policy, as part of the European Commission Sustainable Corporate Governance package.

Under the impetus of Commissioner Reynders, such a measure was under discussion. But it seems to have disappeared during the internal negotiations at the Commission, even though it is an important part of translating the European Green Deal into the daily governance of large European companies. We, therefore, would like to reiterate our strong support for such a measure that does not require any investment from the European budget, and urge you, as President of the European Commission and Green Deal Chief, not to miss this opportunity; as such an opportunity will not be repeated any time soon.

Finally, we would like to recall that while the World Economic Forum has again this year put climate, extreme weather events and the loss of Nature as the top 3 global risks they are facing, it would be incomprehensible if the future European reform that frames their responsibility does not integrate this new reality.

We are, of course, available for a follow-up discussion and further explanation of how this measure could benefit the implementation of the Green deal.

Sincerely yours,