The Next Big Management Challenge: Answering The Call for Corporate Responsibility

by Aman Singh Das | May 28, 2010

  • My Vault

What your company is doing to give back to the environment, to the society and to employees is increasingly becoming a topic of debate in the board room. As I discussed recently, some companies are beginning to align themselves with these commitments by including sustainability metrics in their annual review process. From the many comments that I received for that post (thank you!) emerged a need to further define how the current buzz around CSR will impact the C-suite, and eventually, the entire decision making process. Here's what I wrote for CNBC's Executive Careers Blog, a regular blog penned by the news and commentary team here at Vault.com. As always, please feel free to leave a comment or connect with me on Twitter @VaultCSR.

"It’s no secret that bonuses are a strong component of overall compensation structure for many senior managers. How these are calculated varies from company to company, but for the most part, they are based on a select number of key performance indicators (KPI). Some of the most prominent metrics that these are based on include: profit margins, sales targets, departmental goals, and often, a diversity and leadership component.

As recent events in the finance industry and the Gulf of Mexico have shown, executives will often attempt to meet their KPI targets without considering anything other than the KPIs. Thus, executives can lose sight of the bigger picture, and wreak havoc on the wider world while still "succeeding" in their jobs.

Annual Performance Review

Imagine, though, if bonuses were structured in such a way that executives had to account for their decisions, be transparent on the whys and/or show what they did to address social/environmental issues in their little micro-economy. It might look something like the initiative underway at Minnesota-based utilities company Xcel Energy. According to a recent report in the Guardian, the company includes a sustainability quotient in its annual salary reviews and bonus allocations. While 75% of the incentives continue to be awarded based on earnings per share growth, the remaining 25% involves non-monetary metrics including environmental footprint and progress in decreasing the company's carbon footprint.

It’s a small step toward addressing sustainability and Xcel Energy is certainly not the first company to include corporate responsibility metrics in its compensation structure. However, it might be one of very few U.S.-based companies to do so. Other companies to have recently announced such a modification include oil giant Royal Dutch Shell, banking and mortgage firm ING (No. 21 on Vault's 2010 Top 25 Banking Employers), and manufacturer AkzoNobel. Aside from that, what else do these firms have common? They are all headquartered in the Netherlands.

Despite the financial regulation overhaul bill that was passed last week by the U.S. Senate, bonuses aren’t becoming a historic footnote any time soon, on or off Wall Street. And advocates as well as proactive company leaders are realizing that tying otherwise-loathed initiatives to compensation can help them transition business models from shareholder interests to stakeholder interests, i.e., a triple bottom line.

As senior-level decision-makers, are you comfortable reporting on your department/team's progress, or lack thereof, in becoming responsible corporate citizens? If you've stressed over failed profit margins and targets and believed those were your hardest moments professionally, you might be in for a reality check. As more companies realize the necessity of becoming sustainable, tying departmental efforts to compensation will become a natural next step for most.

Look forward to new KPIs involving carbon footprints, emissions, workplace safety, employee and community development showing up in the annual review because answering the call for corporate responsibility might emerge as corporate America's biggest management challenge yet.

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Filed Under: CSR

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