Link between remuneration and sustainability grows: KPMG

Twenty-three of our top 25 listed companies link boardroom pay to sustainability, seeing Australia rank highly among non-EU countries for doing so.

A KPMG analysis of the 375 largest listed companies by market cap across 15 countries found 92% of the top 25 companies in Australia link the remuneration of their management boards to sustainability.

That said, they are more likely to adopt only short-term sustainability targets, with 18 companies demonstrating this while just five adopt both short- and long-term targets.

Meanwhile, three quarters of companies include sustainability-related performance in remuneration link between two and four material European Sustainability Reporting Standards topical standards to remuneration targets.

However, the actual level of alignment to material topics differs across the companies.

Four have full alignment to material topics, while 17 have some alignment to material topics. Just two have no alignment to material topics.

In Australia, climate change is the topic most likely to be a sustainability target linked to executive pay. This was followed by 'own workforce' and business conduct.

Typically, Australian companies have 80 or more sustainability targets, KPMG found.

Globally, only France saw 100% of its top companies linking sustainability targets to remuneration, followed by Germany at 96%.

Outside of the EU, Australia ranked just behind the UK.

The worst performers were China, Sweden and the US, where just 11 of its top 25 companies align pay with sustainability targets.

To better integrate sustainability indicators into management board remuneration, KPMG recommended companies select key sustainability indicators that are relevant and suitable to remuneration, and are closely linked to corporate strategy.

It also suggested companies use relevant, suitable and reliable data, and clearly define the relative share of targets in short-term and long-term variable remuneration components. It also said they must provide transparency and aim to ensure reliability of data.