One-quarter of European CEOs have environmental protection linked to bonuses

A growing proportion of Europe’s top CEOs have environmental performance linked to their bonuses, with one-quarter having this as a key indicator in remuneration packages, new research has found.

The study of firms in the STOXX Europe 600 index – including Adidas, Unilever, L’Oréal and Volvo – found that 25% of business leaders had short-term environmental incentives in 2021, up from 6% in 2017.

Similarly, 20% of CEOs had long-term incentives focused on the environment, up from just 1% in 2017.

The study by the Vlerick Business School in Ghent, Belgium, also found that ESG targets most often include reducing a business’s carbon footprint, transitioning to renewable energy, and improving the company’s overall environmental rating.

“We see that, with a lot of companies, disclosure of ESG targets or KPIs is rather vague, and are not valued enough to the business to be a significant part of the CEOs remuneration,” said Xavier Baeten, professor of reward and governance at the business school.

“There should be an underlying sustainability strategy, which is still lacking in quite some cases. Companies must detail exactly what ESG targets the CEO is to meet to achieve their remuneration.”

The researchers also found that European CEOs are generally paid just over €3.7m (£3.2m) annually in their full remuneration packages, up from €2.9m in 2020.

However, this is skewed by a large reduction in short-term incentives caused by the outbreak of the Covid pandemic.

On average, the researchers found that long-term incentives yielded the most renumeration for Europe’s top CEOs, while short-term incentives came second, and a base-level pay was the lowest form of remuneration.

While these findings cover firms in the STOXX Europe 600, separate research by PwC earlier this year found that 78% of STOXX Europe 50 companies had adopted some sort of carbon target in executive pay.

Professor Baeten added: “To really highlight a dedication towards ESG goals and fighting climate change, companies need to rethink their target and incentives system – otherwise, it becomes clear that sustainability is not central to their organisational values.”