A couple of weeks ago, Lego Group announced that from 2024 part of their employees’ bonus payments will be tied to the company’s progress on annual emissions.[1]
The Financial Times reported that “Three-quarters of S&P 500 companies have disclosed that ESG metrics contributed to executives’ pay in 2023, up from two-thirds of companies in 2021.”[2]
If that was a step forward, then Lego Group is taking a leap – and applying the new rules to ALL salaried employees. That’s around 18,000 people across the world.
To gauge the reaction to this news from our community, our LinkedIn poll asked: ‘Should bonus payments of all employees be linked to their company's climate performance?’
41% said 'Only for senior teams'
32% said 'No'
23% said 'Yes'
Let's delve into this question further.
Pros:
This approach acknowledges that the task of reducing emissions isn’t limited to a (usually small) sustainability team, but is a mission for the entire organisation.
In 2023, António Guterres, the UN Secretary General said:
“Our world needs climate action on all fronts – everything, everywhere, all at once.”
Hannah Ritchie in her book 'Not the end of the world' noted that the average person will spend about 80,000 hours at work in their lifetime.
We do need new ways to incentivise and empower more people to make climate action a part of their role (whatever it might be).
Linking climate goals and every day work might help people take climate goals more seriously.
Tom Steyer said:
“People do what they get paid to do,”
“If these are supposedly your real corporate goals, but they are not part of the compensation package then it is really hard to say that they are your corporate goals.”[3]
Cons:
If people who are not given sufficient time and the tools to reduce emissions, this approach could potentially financially penalise those with less say in decision-making and even lead to resentment.
Focusing on emissions as a sole target can be distracting from other goals, such as those related to biodiversity and just transition.
Alex Edmans said:
‘‘There’s a risk of hitting the target but missing the point.
‘An example might be a bank that focuses on reducing its own carbon footprint when the biggest effect it could have on reducing emissions is through changing its approach to financing companies that emit carbon.’[4]
Transparency and real accountability can be difficult to achieve.
‘Pay for Climate Performance’ report [5] by As you Sow stated:
“Companies can improve transparency by linking quantitative climate metrics to a measurable amount of pay, allowing investors to better assess emissions reduction impact and amount of incentivization.”
Verdict:
In agreement with our poll results, in the first instance, any link between climate and pay could be applied only to senior management, combined with sufficient training and meaningful involvement in the implementation of the company’s transition plan.
Secondly, a company could benefit from having well-thought-out climate and nature KPIs for all team members, with proportionate rewards for taking action and suggesting innovative ideas.
However, if people aren't given proper education and the opportunity to act, withdrawal of a bonus for not reducing emissions will not win hearts and minds.
In other words, if a company is going to link pay and climate, it needs to be done thoughtfully and fairly.
Also, it would help to remember the bigger picture. Climate action is about cleaner air, healthier lives, and more resilient communities. It can be a very positive and inspiring movement - pay is only one way to get people involved.
Private Goodness offers ESG and climate change training to Boards of Directors, lawyers and foundations. Find out more about services here.
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