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Incentivising your employees to deliver on the climate strategy

Executive Compensation|Total Rewards|Talent
Climate and Resilience Hub

By Alasdair Wood , Hannah Summers and Tanya Krasnova | July 20, 2021

In the fifth and final article in our series on HR and climate strategy, we take a closer look at how introducing climate objectives into your total reward offering can be powerful in embedding the climate strategy.
Climate diagram: Inspire, Incentivise, Upskill and Engage

As our previous articles in this series have highlighted, organisations agree that employees have a significant role to play in the successful delivery of climate strategy. Another key finding of our recent HR and climate change survey was that nearly two thirds of organisations agreed that employee pay should be tied to delivery of climate strategy, and over two thirds are considering implementing green benefits. But the reality is that most companies are not there yet, with fewer than 10% having implemented climate metrics in employee incentive plans or introduced greener benefits. So, where to start?

It is easier to make the connection between climate and reward when thinking about executive incentives – many organisations are already thinking about whether and how climate objectives should be embedded in executive compensation plans. In fact, our survey found that 25% of organisations already incentivise their executives in relation to climate objectives, and a further 46% are either starting to implement or consider doing so.

It’s unsurprising that climate targets in executive incentives were found to be the most common climate-related HR intervention, given the strength of the regulatory and investor-related drivers at play – examples include:

  • A strong signal from investors encouraging companies to use executive compensation as a governance tool to ensure accountability and drive change from the top. Cevian, Blackrock and Institutional Shareholder Services (ISS) are among the most vocal in this regard.
  • World Economic Forum (WEF) climate governance guidance Principle 6: Incentivisation - the board should align executives' incentives with the long-term success of the business, which may include climate-related targets in executive incentive schemes.
  • The COP 26 team, in their preparations for Glasgow later this year, recognise executive compensation as a key mechanism in the transition to net zero and one that adds to a credible company road map.

While it is important to ‘set the tone from the top’ by embedding climate-related targets in executive compensation frameworks, we’re firmly of the view that this in isolation will not be sufficient to ensure that organisation-wide climate targets are achieved. An organisation’s people – and all of its people - have a huge role to play in enabling the transition to net zero and HR can play a critical facilitating role. Introducing climate objectives into broader employee incentive plans and offering climate and environment friendly benefits and HR policies can be powerful in embedding climate strategy and driving awareness and engagement throughout the organisation. Example initiatives by companies that are leading the way are: discounts to the cost of renewable energy suppliers, promoting cycling to work, incentivising ground rather than air travel, and green car schemes, for example limiting car lease options to ULEV and electric vehicles.

For organisations that are considering reviewing their total reward offerings to help empower and incentivise employees to deliver on climate strategy, we leave you with a few questions:

  • Do you know what your company’s KPIs are in relation to climate strategy? Is performance against them already being tracked and measured?
  • Are there any climate-related objectives in your executive compensation plan metrics (short- and/or long-term)?
  • Are your employees currently incentivised or rewarded for pro-climate behaviours – through incentive plans or performance management objectives?
  • Do your benefits and broader HR policies support climate strategy and help engender ‘green’ behaviours?

If the answer to any of those questions is “no” or “not yet” and you want to understand more about how to get started in this space, do get in touch with one of our team members who will be happy to support you on this journey.

Contacts

Alasdair Wood
Senior Director, GB Reward Practice Leader

Associate Director, Executive Compensation and M&A Consulting

Tanya Krasnova
Senior Associate - Work & Rewards

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