Performance indicators for the variable remuneration of CEOs have an impact on corporate sustainability performance

Results from the annual Executive Remuneration study

Xavier Baeten

By Xavier Baeten

Professor of Reward & Sustainability

Marthe Van Hove

By Marthe Van Hove

Researcher, Entrepreneurship

08 December 2021

The remuneration of CEOs of Belgian listed companies remained fairly stable in 2020, with the exception of the annual bonus. Not only did fewer CEOs receive a bonus, those who did get one received a lower amount than in 2019, especially in the large listed companies. In addition, the inclusion of sustainability criteria in the short- and long-term incentives does not currently appear to be having an impact on the company's sustainability performance. This is a striking result of the annual survey of top salaries conducted by the Executive Remuneration Research Centre at Vlerick Business School.


Professor Xavier Baeten, who conducted the survey with researcher Marthe Van Hove: “Whereas last year we analysed whether and how the remuneration of CEOs has an impact on the company's financial performance, this year attention was paid to the impact of the remuneration on the company's sustainability performance, also known as ESG performance (environment, social, governance). The question is very much whether and how top salaries can contribute to the evolution towards greater sustainability, and we want to formulate an answer to this. We are doing this on the basis of a very comprehensive dataset that contains details about the remuneration of the CEO and the sustainability of the company. This dataset contains 600 companies spread across 16 countries and over 7 years”.

Evolution of top salaries in Belgium between 2019 and 2020

The dataset contains the data of all listed companies in Belgium, with 20 companies in the BEL 20, 38 in the BEL Mid and 25 in the BEL Small. The fixed remuneration has remained fairly stable and has even fallen slightly in the smaller listed companies: from €700,000 to €713,000 (BEL 20), from €488,000 to €423,000 (BEL Mid), and from €477,000 to €426,000 (BEL Small). However, the most striking development is the evolution of the bonuses. Whereas none of the companies failed to award a bonus in 2019, in 2020 this was the case for no less than 31% of the companies. In addition, the CEO outperformed the targets (i.e. with a positive impact on the bonus) in 57% of the companies in 2019, whereas this figure fell to 42% in 2020. In addition to the fixed remuneration and the bonus, 65% (BEL 20), 55% (BEL Mid) and 32% (BEL Small) of the CEOs respectively received long-term remuneration in 2020, generally in the form of shares (or share options). Only minor shifts occurred here. Finally, the researchers found that only 19% of the companies made reference to a specific number of shares that must be held by the CEO on an ongoing basis. Yet the Belgian Corporate Governance Code stipulates this as a requirement (principle 7.9).

Impact on sustainability performance

The second part of the survey extends the focus to Europe and aims to answer the question as to how the characteristics of the CEO's remuneration can have an impact on the company's sustainability performance. The Refinitiv dataset was used to measure this sustainability performance. This measures the sustainability performance of the company on the basis of 186 data points per company, divided into 10 categories (e.g. emissions, human rights, product responsibility and employees) and also taking into account any controversies in which the company is involved. A number of interesting links were established here.

First and foremost, it was demonstrated that a high proportion of share-related remuneration (also known as long-term remuneration) has a negative effect on sustainability performance. In concrete terms, companies that award long-term remuneration of between 100 and 180% of the basic salary are doing less well in terms of sustainability than companies that offer a lower level. In addition, the criteria used to determine the bonus also have an impact. The inclusion of indicators relating to sales has a negative impact, whereas strategic indicators (e.g. investments) have a positive impact on sustainability. The survey also showed that the inclusion of profit measures in long-term remuneration has a positive impact, whereas the reverse applies in the case of the short-term bonus.

Xavier Baeten: “Another remarkable finding is that the inclusion of sustainability criteria appears to have no connection with the company’s sustainability performance. In our view, this is related to the current maturity of companies when determining these criteria. These should be derived from a strong sustainability strategy that sets out priorities and is underpinned by a good measurement system. However, this is certainly not always the case. Examples of Belgian companies that score highly in the area of sustainability and also take this into account when determining the remuneration of the CEO are UCB and Cofinimmo.”

The Executive Remuneration Research Centre at Vlerick Business School is an academic think tank with Deloitte as Prime Foundation Partner, and in which Belgian, Dutch and French companies form part. In addition to the annual survey on the salaries of CEOs in listed companies with a specific focus for each year, the centre also focuses on transparency and reporting with regard to the remuneration of top management, the alignment of the remuneration with the company's strategy, and the related social aspects.

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Xavier Baeten

Xavier Baeten

Professor in Reward & Sustainability