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Sustainable Bonuses: Sign of Corporate Responsibility or Window Dressing?

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.

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Fig. 1

Notes

  1. 1.

    See, for example, http://www.occupywallst.org/, http://wearethe99percent.tumblr.com/, or http://www.occupytogether.org/.

  2. 2.

    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.

  3. 3.

    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).

  4. 4.

    http://www.between-us.nl/525/dow-jones-sustainability-index-akzonobel.htm.

  5. 5.

    http://www.annualreportandform20f.shell.com/2010/directorsremunerationreport.php?cat=m.

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Correspondence to Ans Kolk.

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.

Table 2  DSJI sector rankings for the four case companies

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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

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Keywords

  • Corporate responsibility
  • Stakeholders
  • Sustainable bonuses
  • Executive compensation
  • Shareholders