Source: Financial Times, February 24, 2010
Dutch group seeks to tie executive bonuses to social responsibility
DSM wants focus on 'people, profits, planet'
Two Dutch companies have proposed linking top managers' pay to broad measures of environmental sustainability and worker and customer satisfaction, giving a novel twist to the debate on how to reward executive performance.
DSM, the Dutch life sciences group, will announce today that half the bonuses for its management board will be tied to targets such as the reduction of greenhouse gas emissions and energy use, the introduction of new environmentally friendly products and improvements in workforce moral. This week, TNT, the Dutch mail operator, unveiled similar plans that also included customer satisfaction.
Feike Sijbesma, DSM's chief executive, said that the company would focus on 'the triple bottom line: people, profits, planet'.
Mr Sijbesma, whose total pay was €1.5m in 2008, told the Financial Times: 'Sustainability is the key driver of our whole strategy. Remuneration is one of the ultimate expressions of your values.'
DSM, which makes chemicals, nutritional supplements and plastics and had sales of €9bn last year, was forced to withdraw its remuneration proposal last year after fierce investor resistance because some awards were not tied to performance.
DSM's supervisory board, which drew up the plans, has consulted widely with shareholders – making it optimistic the proposal will pass at next month's annual meeting – as well as unions, workers, newspapers and politicians.
What do you think of tying executive bonuses of a chemical company (like DSM) to performance on sustainability?
Some investors are sceptical, saying financial performance remains the best yardstick on which to base pay. 'You lose sight of the fact that all these things lead to shareholder value itself. If you use sustainability or employee satisfaction as targets it becomes too easy and too opaque,' said Jan Maarten Slagter, director of the VEB retail shareholders' association.
Half of DSM's short-term bonuses will be determined by the number of environmentally friendly products it introduces each year, whether it reduces energy consumption and how it performs in an employee satisfaction survey. The other half will be based on financial targets such as sales and cash flow.
Long-term bonuses will be given in shares with half based on performance and the remainder on how much DSM reduces greenhouse gas emissions per unit of production. Bonuses cannot exceed fixed pay.