The Dutch chemical company confirmed the shift in its remuneration strategy last week, joining a clutch of compatriots eschewing the traditional model of linking bonuses to shareholder value. Instead, it is determining bonuses on the basis of greenhouse gas emissions, environmental product lauches, and employee morale.
This bold new way of rewarding leadership is especially suited to food companies and others in the life sciences, and should be emulated by players outside of The Netherlands.
It’s rare, these days, to stumble across a food firm that does not have a corporate social responsibility strategy. Stakeholders at every level – from shareholders to customers to employees – are keeping a close eye on companies’ records. No-one wants to be associated with an energy-guzzling dinosaur that doesn’t see the long-term business sense. The image of dirty factories pumping out pollution, or stealing resources from the mouths of generations not yet born, must be dumped – firmly and credibly.
As governments and researchers are scratching their heads over how to feed a growing population on finite resources, industry needs to show just how its technologies can help lead to a greener economy.
By putting bosses pay checks on the line, DSM is going a step further than most. It’s a sound plan on several fronts.
Boardroom bonuses have always been intended to ensure that decisions taken deliver results. But if a decision has to yield green benefits as well as profits, you and I can bet our non-performance-related bottom dollar that environmental consequences will be carefully considered before that decision is taken.
It is also a rather ingenious way of reducing the negative connotations of bosses’ bonuses. People are arguably more sensitive than ever today, in the wake of obscene hand outs to top brass at failing banks.
DSM is far from a failing bank. Its full year results, released last week, showed a 52 per cent drop in operating profit to €370m, but a soaring nutrition division mopped up some of the damage to harder hit sectors.
It has been cautious, however. A drive to cut costs meant the cull of 1000 jobs across the group last year. That’s not great for employee morale.
It is true that while GHG reductions and green products have benchmarks attached, we don’t know much about how DSM will measure morale. (Cameras to watch if employees skip down the corridors, or Monsters Inc-style scream-o-meters, are just two of the suggestions from our editorial team).
But those whom DSM has shown the door may take a bite from their former bosses’ pay cheques yet, through the feelings of former colleagues left behind.
What does it matter?
If sustainability sells, one may ask what it matters if a boss’ bread and butter (and jam) is based on suitability itself, or on the value that sustainability creates for the company.
Shareholder value is based largely on the here, the now and the relatively short term – how big this year’s pile of profits is, and whether it has sewn enough seeds for the next few years.
But shareholders are increasingly seeing a company’s sustainability record as the surest gauge of its long term potential. Not just 10 or 20 years down the track, but a hundred years down the line, when – one hopes – the great-grandchildren of today’s CEOs are taking up their seats around board tables somewhere.
So the logic of sustainability goes: There will be no board tables in 100 years if there is no earth on which businesses can flourish. And that means no carrots – golden, green-tipped, or plain orange – to hang over them.
Jess Halliday is editor of award-winning website FoodNavigator.com. Over the past twelve years she has worked in print, broadcast and online media in both Europe and the United States.