IR blog: Sustainability metrics increasingly important in leadership incentive programmes
Stock listed companies are increasingly including sustainability topics as part of their leadership compensation criteria. This year, Cargotec leadership remuneration will also include sustainability indicators. This is a process that will develop over the coming years.
Remuneration at Cargotec is managed through clearly defined processes which involve the Annual General Meeting of shareholders, the Board of Directors and the Board’s Nomination and Compensation Committee (NCC). Cargotec’s remuneration policy reinforces company values and ethical principles, aligning remuneration with the successful delivery of strategy and creating long-term shareholder value.
The Board of Directors and NCC closely monitor the international discussion and trends regarding leadership remuneration.
“Cargotec's Board strongly supports sustainability themes, and the need to include elements that emphasise sustainability in leadership remuneration has long been discussed in the Board. Themes related to all ESG aspects, environment, social and governance, are important for Cargotec’s Board,” says Vesa-Pekka Lankinen, VP Performance and Rewards, Cargotec.
“The Board has evaluated various models about how to connect sustainability topics to leadership remuneration. At the end of last year, the Board decided to include sustainability themes in the leadership incentive programmes.”
Incentives encourage strategy implementation
In April 2021, Cargotec's Board of Directors confirmed sustainability and profitable growth as company breakthrough objectives. When Cargotec’s strategy was refocused in March 2022, Cargotec's breakthrough objectives sustainability and profitable growth remained.
“Remuneration reinforces the company strategy implementation. Solid, traditional economic indicators for monitoring the realisation of profitable growth have been in use at Cargotec for quite a while. During spring 2021, with the strategy process lifting sustainable development to the core of our strategy, we introduced indicators to monitor the implementation of sustainable development," says Lankinen.
The eco portfolio order intake and Mission Climate programme roadmap the first criteria for rewarding sustainable development
The eco portfolio order intake and the Mission Climate programme roadmap are included in the 2022 performance share programme evaluation criteria.
Cargotec established the eco portfolio in 2017. The portfolio consists of products and services that enhance customers’ sustainability with tangible environmental benefits. In the first quarter of 2022, the eco portfolio sales increased by 38 percent from the comparison period and totalled EUR 202 million, representing 24 percent of consolidated sales.
Cargotec’s Mission Climate programme was founded in May 2021. With the programme, Cargotec wants to drive the low-carbon industry transformation and the emission reductions in practice. The programme’s ultimate goal is to get Cargotec on the path of achieving a net zero emission value chain in the future.
“Metrics such as these are now for the first time included in the evaluation of Cargotec’s share-based incentive programmes. Also with these programmes, we want to ensure that the targets set for the sustainable development progress are achieved,” says Lankinen.
“These are concrete, measurable topics. The interlinking logic between remuneration and these themes has been well understood also in the investor community, for example. Increasing the offering and sales of solutions that reduce the emissions of our customers is now part of the remuneration criteria.”
“We have already noticed clear progress on these issues which shows that combining remuneration and sustainability topics yields results. ”
Combining sustainable actions with compensation is a learning process
Remuneration methods are effective when they are based on measurable things. Compensation can steer things in a certain direction and have an influence on operations. One gets what one measures.
“We now have good, clear and measurable criteria for assessing management compensation for these two sustainability-related topics. We will study the applicability of the compensation and sustainability indicators that have now been introduced and, if needed, make adjustments for the future,” says Lankinen.
“As an example, we can perhaps pick up new themes from the Mission Climate Roadmap that can be taken in as remuneration metrics. We can also consider other ESG themes, such as social responsibility and governance, as basis for compensation measurement.”
“This is a learning process where we look at a wide entity and look for the best items for compensation purposes. With those, we can promote the company strategy and, at the same time, the interests of the environment, customers, employees and shareholders," notes Lankinen.