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Principles for linking sustainable goals to executive incentives Giuseppe van der Helm Executive Director VBDO / President Eurosif Amsterdam, 31 mei 2011 History 2006: VBDO, HayGroup and DHV consultants study the link between

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Principles for linking sustainable goals to executive incentives

Giuseppe van der Helm Executive Director VBDO / President Eurosif

Amsterdam, 31 mei 2011

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History

2006: VBDO, HayGroup and DHV consultants

study the link between sustainability and remuneration for the first time

2009: Out of 50 AGM’s visited only 7 companies

link part of the variable remuneration to non- financial criteria

Problem: implementation
2010, 2011: VBDO theme at AGM’s

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Bonus: how much or why?

Everyone always talks about amounts...
But motivation is more relevant:
What behaviour will you reward?

Advantages sustainable based bonus:

Formulate SMART objectives
Expand/ involve the whole organisation
Report about achievements

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Input

VBDO: competence CSR/SRI
Best practices
Stakeholder interviews
HayGroup: competence remuneration
DHV: competence sustainability

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How to reward sustainable behaviour?

1. Discretionairy of non discretionairy
2. Phase CSR
3. Overall indicator
f specific indicator?
4. Targets
3. Set target for

achieving next phase

Non discretionairy discretionairy Performance data absent Performance data available

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Discretionairy or non-discretionairy

Discretionairy: qualitative assessment / Evaluation afterwards:

– Eg dealing with issues – Eg behaviour

Non discetionairy: assessment on quantitative, pre-set objectives

– Eg CO2 / tonne – Market share sustainable products

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Determine sustainability phase

Important for availability CSR data
Only with mature companies are sound

and ample CSR data available

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Companies with sufficient CSR data: Choose between:

Overall indicators (available and fitting)
Indicators for specific sustainability issues

(choose most material/ relevant)

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Remuneration elements

SHORT TERM INCENTIVES (STI)

Variable, performance related income based on short term (one year) goals.

LONG TERM INCENTIVES (LTI)

Variable, performance related income based on long term ((> 1 year) goals.

BASE SALARY

Fixed and guaranteed annual income

BENEFITS

Fringe benefits

PERFORMANCE INCOME

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Remuneratie elements

Employee

Performance Oriented

C E

Fee

A D

F G Entrepreneur

Base Salary Bonus Benefits Long Term Incentives

Performa nce Touched Opportunity Driven Performance Driven

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Result areas

FINANCIAL OBJECTIVES SHAREHOLDER VALUE PERSONAL OBJECTIVES … … FITNESS OF THE COMPANY OPERATIONAL OBJECTIVES … STRATEGIC PLAN SUSTAINABILITY INNOVATION MARKETSHARE

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RESULT AREAS

LONG TERM (LTI) TERM (VARIABLE PAY) 30 % PERSONAL OBJECTIVES 100 % SHAREHOLDER VALUE 70 % FINANCIAL OBJECTIVES

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Long term incentives

LONG TERM (LTI) SHORT TERM (VARIABLE PAY) LONG TERM (LTI) SHORT TERM (VARIABLE PAY)

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VBDO position

Research shows that it is possible to link the bonus to CSR objectives!

2010 Sustainable Remuneration Guide is

published

2010 and 2011 theme at AGM’s
Listed companies are asked to implement

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Conclusion

At least one third of the bonus should be based
n sustainable criteria
60% of the variable pay should be aimed at

achieving long term objectives

Bonus should not exceed 100% of the fixed

annual income

Think about internal gap

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VBDO giuseppe.vanderhelm@vbdo.nl +31 435 532 653 +31 641 600 703