As the weeks have turned into months, this pandemic has raised questions about our attitude to our environment, our economy, our society, our family life and our general health and wellbeing. We never saw it coming but this imposed ‘new normal’ has turned everything on its head and forced us to rethink the fundamentals of our economy and questioned the extent to which we were living and working up to this point is sustainable. Most importantly this tumultuous period has shown us that things can be done differently, and that this way of living is not only achievable but necessary if we are to have a better functioning society, healthy work life balance and a thriving planet for generations to come.

We know people want to learn how to live more sustainable lives. In a recent cross-generational study led by Southern Cross University, 913 people were surveyed in America and Australia in a bid to understand just how far they were willing to go to protect the planet. 77% of individuals surveyed wanted to learn more about sustainable lifestyles, with most already taking steps to become greener with 83.4% of them recycling and avoiding single-use plastics. In the world of work, investors are increasingly looking beyond the traditional financial performance of a company to performance on a sustainability level and this crisis will only increase pressure on companies to demonstrate future sustainability risks in their strategies. 

At an employee level, people are becoming more discerning in terms of their interactions with companies who can demonstrate a tangible commitment to sustainability. A recent report by REBA cited Peakon’s 2020 Employee Expectations Report which identified sustainability as one of the four biggest employee expectation trends. When one thinks about sustainability business models, environmental issues are the obvious ones that springs to mind but a well-rounded sustainability model will address and measure performance against all three pillars, namely:

1. Environmental - targeting issues such as greenhouse gas emissions, energy efficiency, resource depletion, waste management etc. 
2. Social – addressing issues such as the distribution of fair-trade products, health and access to wellbeing support, workplace health labour standards in the supply chain, local community relations, employee relations and diversity
3. Governance – ensuring benefits and compensation packages are fair and transparent and boards are diverse

Integrating Sustainability into Reward
As companies continue to recognise and integrate more sustainability factors into their business strategies, many realise the business case for incorporating sustainable measures into their Reward Strategy. The majority recognise the impact a sustainability commitment or lack of can have on retaining existing and attracting new talent. 
A good example of this is Gender Pay reporting, now in its’ third year. Many job applicants cited the Gender pay gap of an organisation as having a big impact on where they would choose to work. It appears that measures of sustainability at the governance level factors into their decision criteria with many willing to work for less money at an organisation with a more responsible and sustainable led business.

Some key criticisms of current ESG Reward Systems

• The link between company success and sustainability is not clear thus the associated pay mechanisms and initiatives are often non-strategic and inconsistent.
• The KPIs linked to the reward schemes are narrowly focussed on value protection rather than value creation. Many companies still place too much emphasis on risk mitigation and compliance as opposed to future facing examples i.e. green product portfolio growth or energy targets.
• There is not enough use of indicators to improve future performance i.e. employee engagement or diversity targets which often means companies are missing out on opportunities for creating corporate value.
• The targets are not sufficiently Long Term - i.e. they centre around short-term gain and not enough around improvement of future performance

So how do you get it right?

• Articulate the link: There should be a clear link between sustainability issues and the material success of the company otherwise employees are less likely to understand or be motivated by the part they play in long term growth and success of the company.  Your Reward schemes should be designed in a considered manner, factoring in the intrinsic desire of human nature to feel part of something bigger than company profits. It is a powerful way of demonstrating, both internally and externally, that sustainability is taken seriously and is integrated throughout the business. 
• Understand your current position: Does your current Reward Strategy effectively reinforce a commitment to sustainability across the board? Exploring how effective your reward package is in achieving your sustainability goals as well as helping employees achieve their own sustainable aspirations is key. Canvass employees’ views of their existing package and research new reward initiatives that could reinforce a sustainable message benefitting both the long-term prosperity of the company and the employee.
• Address any ‘perverse incentives’ in your existing reward proposition: This is where the types of reward or the targets set in incentive schemes may be in direct opposition with your sustainability goals. Without this reconciliation, employees may find themselves in difficult positions, where their ability to comply with a sustainably led reward policy is undermined or their motivation to work for the organisation is diminished.
• Strike a balance: Reward Strategies must find the right balance between motivating people to achieve current sustainability goals whilst incentivising future innovation and exploring new ones. This is where reviewing the balance between your short- and long-term reward is key.  People need to be incentivised to think beyond the short-term bottom line, to consider the ESG factors that impact the longer-term reputation, competitiveness and, ultimately, profitability of the business. A sustainable Reward Strategy should adopt a bigger picture philosophy, with longer-term initiatives that drive sustainable success. This might require an examination of current package elements that drive short term behaviours unlinked to sustainability and the exploration of alternative elements both financial and non that employees can depend on.

Considerations
There is no blueprint for the development of a sustainability led Reward Strategy. Each company must consider its’ individual strategic priorities but generally decisions in setting up such sustainably led reward systems should consider:

1. Which sustainability issues to focus on. 
2. What sustainability metrics and rewards are needed to achieve success in those areas. Any reward scheme design with sustainability at the heart of it needs to have defined performance metrics with individualised criteria and most importantly the design should help to make the intangible concept of sustainability into something tangible.
3. How performance should be assessed, is it at the individual, business unit or corporate level?
4. Integrating sustainability into performance reviews which brings the conversation alive and ensures company and individual contribution to sustainable targets are discussed and that employees are continually incentivised to pursue sustainability related objectives through their efforts.
5. Looking beyond the usual incentive schemes- While most companies link sustainability incentives to annual bonuses, the power of non- financial incentives and recognition should not be underestimated. Laundry and homecare company Henkel initiated a campaign to get all employees aware of the importance of innovation and their own potential to contribute new ideas. As part of the filtering process for new ideas, they made it clear that for a new product to move through the pipeline, it must show that it offers performance improvements based on sustainability.

If you'd like to know more about Responsible Reward, please do contact us on +44 (0)20 3457 0894 or email emer.bucukoglu@innecto.com. You can also download our Responsible Reward Guide.

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