Abstract
Despite a strong plea for integrating sustainability goals into traditional corporate bonus schemes, a comprehensive implementation of these systems has been lacking until recently. This article explores four illustrative cases from the Netherlands, where several multinationals started to pioneer with sustainable bonuses in the past few years. The article examines the setups and the different elements of bonus programmes used, in terms of performance criteria (focusing in particular on external vs. internal benchmarking), their link to specific stakeholders, type and size of bonuses, target levels and transparency. While sustainable bonuses signal corporate awareness of responsibility vis-à-vis society and stakeholders, credibility varies considerably depending on these elements. Our case evidence sheds some light on the extent to which sustainable bonuses may be a credible sign of corporate responsibility or rather just another perverse mechanism meant to keep up bonus levels (window dressing). A definite assessment is hampered by the emergent state and lack of full transparency—while ‘justified’ by companies for competitive reasons, this raises questions. Insights are offered to appraise current and future systems and provide directions for further research.
Similar content being viewed by others
Notes
See, for example, http://www.occupywallst.org/, http://wearethe99percent.tumblr.com/, or http://www.occupytogether.org/.
In this article, we use the term ‘sustainable bonuses’ to identify the practice of linking (components of) compensation packages and incentive plans to non-financial dimensions of sustainability performance. We acknowledge the variety of possible reward packages (e.g., combination of cash, performance-related bonus, long-term incentives, and non-financial and intangible benefits, including job security, career development, company awards, tax exemptions and personal recognition), but we use a generic label for the purpose of this study.
As part of its generic approach for collaborative decision making between stakeholders, the Netherlands also institutionalised multi-stakeholder processes in strategic environmental decision making. In the so-called Dutch ‘green polder model’ introduced a decade ago, social organizations were given the opportunity to air their views and present their arguments at an early stage in the decision-making process involving sustainability-related large-scale projects. For further details on the Dutch green ‘polder model’, see Glasbergen (2002).
References
Aan de Brugh, M. (2010). In tijden van crisis biedt duurzaamheidsbonus uitkomst, NRC Handelsblad, 3 March.
AkzoNobel. (2011). Notulen van de Algemene Vergadering van Aandeelhouders AkzoNobel N.V. Amsterdam, 27 April. retrieved from http://www.akzonobel.com/system/images/AkzoNobel_Notulen_AkzoNobel_AGM_April_2011_tcm9-61414.pdf.
Berrone, P., & Gomez-Mejia, L. R. (2009a). The pros and cons of rewarding social responsibility at the top. Human Resource Management, 48(6), 959–971.
Berrone, P., & Gomez-Mejia, L. R. (2009b). Environmental performance and executive compensation: An integrated agency-institutional perspective. Academy of Management Journal, 52(1), 103–126.
Burgess, K. & Steen, M. (2009). Investor rebellion over Shell pay report’, Financial Times, 20 May.
Carson, T. L. (1993). Does the stakeholder theory constitute a new kind of theory of social responsibility? Business Ethics Quarterly, 3(2), 171–176.
Ceres. (2010). The 21st century corporation: The ceres roadmap for sustainability. San Francisco, CA.
Ceres (2012). The road to 2020: Corporate progress on the ceres roadmap for sustainability. San Francisco, CA.
Conference Board (2012). Linking Executive Compensation to Sustainability Performance, New York, The Conference Board.
Cordeiro, J. J., & Sarkis, J. (2008). Does explicit contracting effectively link CEO compensation to environmental performance? Business Strategy and the Environment, 17(5), 304–317.
Daily, C. M., Dalton, D. R., & Cannella, A. A., Jr. (2003). Corporate governance: Decades of dialogue and data. Academy of Management Review, 28(3), 371–382.
Deckop, J. R., Merriman, K. K., & Gupta, S. (2006). The effects of CEO pay structure on corporate social performance. Journal of Management, 32(3), 329–342.
Dikolli, S. S., & Sedatole, K. L. (2007). Improvements in the information content of nonfinancial forward-looking performance measures: A taxonomy and empirical application. Journal of Management Accounting Research, 19, 71–104.
Elms, H., Berman, S., & Wicks, A. C. (2003). Ethics and incentives: An evaluation and development of stakeholder theory in the health care industry. Business Ethics Quarterly, 12(4), 413–432.
Fransen, L., & Kolk, A. (2007). Global rule-setting for business: A critical analysis of multi-stakeholder standards. Organization, 14(5), 667–684.
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman.
Glasbergen, P. (2002). The green polder model: Institutionalizing multi-stakeholder processes in strategic environmental decision-making. European Environment, 12(6), 303–315.
Glass Lewis. (2011). Greening the green 2011, Linking executive compensation and sustainability. Retrieved from http://www.glasslewis.com/uncategorized/greening-the-green.
Guerrera, F. (2009a). A need to reconnect. Financial Times, 13 March, p. 9.
Guerrera, F. (2009b). Obsession with shareholder value was a ‘dumb idea’ says Welch’. Financial Times, 13 March, p. 1.
Hahn, T., Kolk, A., & Winn, M. (2010). A new future for business? Rethinking management theory and business strategy. Business and Society, 49(3), 385–401.
Hill, C. W. L., & Jones, T. M. (2002). Stakeholder-agency theory. Journal of Management Studies, 29(2), 131–154.
Hol, H., Kurznack, L., Logger, E., & Van Tilburg, R. (2010). Sustainable renumeration. A guide for linking sustainable goals to executive incentives. VBDO, Hay Group and DHV. New York: The Conference Board, Inc.
Holstrom, B., & Milgrom, P. (1991). Multi-task principal-agent analysis: Incentive contracts, asset ownership, and job design. Journal of Law Economics and Organization, 7, 24–51.
Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8–21.
Jensen, M. C. & Murphy, K. J. (2004). Remuneration: Where we’ve been, how we got to here, what are the problems, and how to fix them. ECGS Finance Working Paper No. 44, Brussels.
Kaplan, R. S. & Norton, D. P. (2005). The balanced scorecard: Measures that drive performance. Harvard Business Review, 83(7).
Keuning, W. (2010). AkzoNobel en Philips toch niet zo duurzaam. Volkskrant, 5 November.
Kolk, A., Levy, D., & Pinkse, J. (2008). Corporate responses in an emerging climate regime: The institutionalization and commensuration of carbon disclosure. European Accounting Review, 17(4), 719–745.
Kolk, A., & Pinkse, J. (2006). Stakeholder mismanagement and corporate social responsibility crises. European Management Journal, 24(1), 59–72.
Lacy, P., Cooper, T., Hayward, R., & Neuberger, L. (2010). A new era of sustainability. UN global compact-accenture CEO study 2010. Routledge, London
Lansley, S. (2011). The cost of inequality: Three decades of the super-rich and the economy. Gibson Square Books.
Laplume, A. O., Sonpar, K., & Litz, R. A. (2008). Stakeholder theory: Reviewing a theory that moves us. Journal of Management, 34(6), 1152–1189.
Lenssen, G., Bevan, D., & Fontrodona, J. (2010). Corporate responsibility and governance: The responsible corporation in a global economy. Corporate Governance, 10(4), 340–346.
López, M. V., Garcia, A., & Rodriguez, L. (2007). Sustainable development and corporate performance: A study based on the Dow Jones sustainability index. Journal of Business Ethics, 75(3), 285–300.
Lorsch, J. and R. Khurana: 2010, ‘The pay problem. Time for a new paradigm for executive compensation’, Harvard Magazine May/June, 30–35.
Lothe, S., & Myrtveit, I. (2003). Compensation systems for green strategy implementation: Parametric and non-parametric approaches. Business Strategy and the Environment, 12(3), 191–203.
Lothe, S., Myrtveit, I., & Trapani, T. (1999). Compensation systems for improving environmental performance. Business Strategy and the Environment, 8(6), 313–321.
Luft, J. (2009). Nonfinancial information and accounting: A reconsideration of benefits and challenges. Accounting Horizons, 23(3), 307–325.
Mahoney, L., & Thorne, L. (2005). Corporate Social Responsibility and long-term compensation: Evidence from Canada. Journal of Business Ethics, 57(3), 241–253.
McGuire, J., Dow, S., & Argheyd, K. (2003). CEO incentives and corporate social performance. Journal of Business Ethics, 45(4), 341–359.
Meyer, M. W. (2002). Rethinking performance measurement. Cambridge: Cambridge University Press.
Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of Management Review, 22(4), 853–886.
Perego, P., & Hartmann, F. (2009). Aligning performance measurement systems with strategy: The case of environmental strategy. Abacus-a Journal of Accounting Finance and Business Studies, 45(4), 397–428.
Renwick, D. W. S., Redman, T., & Maguire, S. (2012). Green human resource management: A review and research agenda. International Journal of Management Reviews (in press).
Robinson, M., Kleffner, A., & Bertels, S. (2011). Signaling sustainability leadership: Empirical evidence of the value of DJSI membership. Journal of Business Ethics, 101(3), 493–505.
Sadowski, M., Whitaker, K., & Buckingham, F. (2010). Rate the raters phase two. Taking inventory of the ratings universe. London, Sustainability.
Schiffers, M. (2010a). Shell moet van APG bonussen verlagen. Financieele Dagblad, 11 September.
Schiffers, M. (2010b). Bonus Shell weer op de schop. Financieele Dagblad, 2 December.
Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, LII(2), 737–783.
Siegel, R. P. (2010). When pigs fly: Haliburton makes the Dow Jones sustainability. Retrieved from http://www.triplepundit.com/2010/09/when-pigs-flyhalliburton-makes-the-dow-jones-sustainability-index/.
Sprengers, P and M. Groen: 2010, ‘Wat zeggen duurzaamheidsindexen nou precies?. Retrieved from http://voordewereldvanmorgen.nl/blog/praat-mee-wat-zeggendeduurzaamheidsindexen-nou-precies#comment-3114.
Stanwick, P. A., & Stanwick, S. D. (2001). CEO compensation: does it pay to be green? Business Strategy and the Environment, 10(3), 176–182.
Starik, M. (1994). Essay the Toronto conference: Reflections on stakeholder theory. Business and Society, 33, 82–131.
Stern, S. (2010). The outsider in a hurry to shake up his company. Financial Times, 5 April, p. 12.
Sternberg, E. (1997). The defects of stakeholder theory. Corporate Governance: An International Review, 5(1), 3–10.
Tonello, M. (2010). Sustainability in the boardroom. New York: The Conference Board.
Wai Kong Cheung, A. (2011). Do stock investors value corporate sustainability? Evidence from an event study. Journal of Business Ethics, 99(2), 145–165.
Wang, H., & Choi, J. (2010). A new look at the corporate social-financial performance relationship: The moderating roles of temporal and interdomain consistency in corporate social performance. Journal of Management. doi: 10.1177/01492063103755850.
WBCSD. (2010). People matter reward. Linking sustainability to pay. Geneva: World Business Council for Sustainable Development.
Ziegler, A., & Schröder, M. (2010). What determine the inclusion in a sustainability stock index?: A panel data analysis for European firms. Ecological Economics, 69(4), 848–856.
Author information
Authors and Affiliations
Corresponding author
Appendix: Some Background on the Dow Jones Sustainability Indexes
Appendix: Some Background on the Dow Jones Sustainability Indexes
The Dow Jones Sustainability Indexes (DJSI) were launched in 1999 as the first global sustainability benchmarks. The indexes are offered cooperatively by SAM Indexes and Dow Jones Indexes. They track the stock performance of the world’s leading companies in terms of economic, environmental and social criteria. The indexes serve as benchmarks for investors who integrate sustainability considerations into their portfolios and provide an effective engagement platform for companies who want to adopt sustainable best practices.
The indexes’ best-in-class approach means that they include only companies that fulfill certain sustainability criteria better than the majority of their peers. No sectors are excluded from this process. To be included or remain in the index, companies have to continually intensify their sustainability initiatives (source: http://www.sustainability-indexes.com/.
The Table 2 outlines the DJSI rankings in 2010–2011 of the four case companies investigated in this article.
Rights and permissions
About this article
Cite this article
Kolk, A., Perego, P. Sustainable Bonuses: Sign of Corporate Responsibility or Window Dressing?. J Bus Ethics 119, 1–15 (2014). https://doi.org/10.1007/s10551-012-1614-x
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10551-012-1614-x