Research projects

Fundamentally, a remuneration model consists of three components. To arrive at responsible remuneration with a core of social value and buy-in from all stakeholders, we identified six research topics that result in three deliverables

Research projects

Fundamentally, a remuneration model consists of three components. To arrive at responsible remuneration with a core of social value and buy-in from all stakeholders, we identified six research topics that result in three deliverables

1. Performance

How to measure sustainable long term value creation (SLTVC). The SLTVC exists of a quantitative and qualitative component, topped off with a definition of long term.

• Yardstick: develop an instrument
to measure firm’s value creation
• Barometer: analysis of the
alignment between the purpose,
performance and pay of a company
• Convergence: the term at which
different measures converge, giving meaning to the concept of long term.

2. Mechanism

A mechanism that pays executives for the actual performance and stimulates them to make more sustainable decisions.

• Behavior: analyse the effect of
extrinsic motivation (incentives) on intrinsic
motivation

3. Regulation

Ensure the existence of hard and soft law and reporting standards to allow for effective implementation and execution of modernised pay.

• Governance: outline internal and
external corporate governance
requirements to support
modernised pay
• Reporting: design detailed
reporting requirement and
models

Research topics

A central feature of any pay policy is an agreement on the ‘yardstick’: the instrument to measure firm’s value creation by combining financial and non-financial performance.
Many CEOs are rewarded for mainly short-term financial targets. Yet share- and stakeholders rarely want short-term financial success if it comes at the cost of long term value. For this to change, performance yardsticks must also change.
We are developing a database of firm-level social and environmental monetised impacts. This database will allow us to assess the ‘net societal value added’ of firms by netting financial impact with the financial value of social and environmental impacts (both positive and negative). This results in a more truthful measure of firm sustainable value creation for all stakeholders to which compensation may be tied. Once finished, this approach of monetising firm impacts has several useful features. The direct measurement of net societal value creation spurs CEOs to act with societal interests in mind. Similarly, direct measurement implies that decompositions of financial and various aspects of non-financial value should be possible. This offers CEOs and stakeholders the tools to assess where firm behavior should be directed. Relatedly, given that all impacts are expressed in the same units of account, trade-offs between various stakeholder interests become transparent and comparable. Taken together, the role of this impact yardstick then becomes severalfold: it incentivizes the right behavior but can also be analysed to guide strategic decisions and supports fairness in firm behavior by rationalising the trade-offs between various stakeholder interests.

Firms increasingly recognize that share- and stakeholders expect that firm behavior keeps societal interests in mind. As a result, firms attempt to act purposeful and to engage with stake- and shareholders on material societal interests. This engagement may be bilateral, in the public debate, at the AGMs and through disclosures. Parallel to such efforts by firms, there is a widespread concern that talk is cheap. Actual decisions may deviate from stated objectives, and many of the disclosures and other touchpoints for engagement may be heavily skewed to paint the firm in a more favorable (often: greener) light.
We are developing an AI-powered tool to assess the extent to which firm attitudes, attention and actions align. This assessment of alignment or conviction should help us to better understand whether companies focus on the right issues and whether they are able to translate their focus on the right topics into concrete actions to drive long-term societal value creation.
With respect to pay, such tracking of intentions, actions and progress is important as well. Companies should align purpose, performance and pay. Measuring the extent to which purpose is embedded in firm priorities and outlooks can facilitate monitoring and a quantification of the relation between purpose and pay. Likewise, measuring firm attitudes, attention and actions and the outside perception of those attitudes, attention and actions may serve as a proxy and/or a leading indicator for performance. ‘Impact’ may be a slow-moving variable. Pivoting to a green business model takes time, and the effects of that will only become apparent after an implementation lag. Until the pivot is finalized, there still is a need to track progress. The conviction barometers may be one tool to track firm attitudes, attention and actions.

Whilst many stakeholders as well as shareholders agree that firms should focus on long-term outcomes, few offer a view on what this ‘long term’ is and why they feel that their view of the ‘long term’ is appropriate. Is 5 years the long term or 10? If it is 10, why?
In terms of compensation policy, the appropriate long-term may be the term at which different measures of firm outcomes converge. Shareholders may be willing to forego short term cash profits in return for future gains that result from current period investments. This expectation of future profits is discounted into asset valuations, but at some point, such expectations should materialise for the foregone short-term cash profits to be worthwhile to the investor. Likewise, material non-financial issues affect future firm performance (human capital, climate risks, etc.), but it takes time for such issues to affect the firm’s bottom line.
For compensation policy, the optimal long-term may be at the nexus between current and future costs and benefits for shareholders and stakeholders. A measure of CEO performance is ‘fair’ if it has had sufficient time to ‘absorb’ all relevant financial and non-financial costs and benefits. In this research project, we aim to estimate this term: how long does it take for accounting and share-based performance to align and how long does it take for non-financials to be appropriately accounted for in profits and valuations.

Whilst many stakeholders, boards and shareholders will agree that compensation policy can be improved, there is less agreement on what this change should constitute. This may be partially attributed to the fact that evidence on the efficacy of new models for rewarding CEOs is scarce. The resulting paradox is that willingness to change is low, and no new observational data becomes available.
We’re finding a way out of this problem by running online, laboratory and within-firm experiments. This allows us to test potential new compensation models so that we can arrive at evidence-based compensation policy that drives the right behavior by CEOs. We take a broad approach to this experimental redesign of remuneration and consider factors beyond the classical principal-agent approach, including leadership style, personality traits, teamwork and culture.

 

This research is supported by the Goldschmeding Foundation. The Goldschmeding Foundation for People, Work and Economy is working towards a better world in which People, Work and the Economy are well-balanced and reinforce each other, based on the conviction that a better world is reached when people serve each other’s interests. 

To this end the Foundation uses the donations that it receives, its network and its expertise to support excellent scientific research as well as innovative field projects that contribute to establishing an Inclusive Labour market and a Circular and Humane Economy.

Although many organisations and stakeholders recognise that changes to executive pay are sorely needed, coordinating on a joint push toward a new equilibrium is difficult. Many organisations and stakeholders prefer not to be the first and/or only mover. Many organisations and stakeholders don’t necessarily agree on the direction and magnitude of the push towards a new equilibrium. In short, there are (temporary) organisational and governance frictions that hinder the development and adoption of a new remuneration model across the board. In an effort to reduce such governance frictions, Reward Value is coordinating the development of a set of Principles for Responsible Remuneration (PRR). These principles are developed jointly with stakeholders. This co-creation allows for the process to be part of the solution of achieving agreement on the direction of change. Upon agreement of the PRR, the PRR may become a touchpoint for meaningful engagement about and governance of executive pay.

Companies are bound by various requirements for their reporting on remuneration, both through legislation and regulations and through (self) regulation in the form of governance codes. Companies are generally compliant with such requirements, but despite such compliance, concerns remain about the extent to which shareholders and stakeholders can successfully monitor companies’ remuneration policies. This is partly the result of the fact that remuneration reporting is often not standardised, companies have a relatively large amount of freedom to define broad standards at their own discretion, and only rarely offer extensive and substantive substantiation for the choices made in the remuneration policy. Concerns about the “quality of transparency” are the result. To help companies design their remuneration reporting in such a way that the expectations of stakeholders and shareholders can be met, we propose to develop a guidelines document for high-quality remuneration reporting. In such a document we not only map out what the best practices are now, but especially how they can be improved. By sketching such an ‘ideal type’ of remuneration reporting, we hope to encourage market parties to make their own remuneration reporting more transparent, for example by standardisation and by offering more substantive explanation of choices in remuneration.

Publications

Reward Value's analysis of the Corporate Sustainability Due Diligence Directive
The CSDDD proposal is an important step forward for a sustainable evolution of governance practices. However, there is still room to unlock its full potential as a transformative and influential instrument. Reward Value believes that proactive intervention in the area of sustainable corporate governance is needed, and that executive remuneration can be leveraged to incentivise behavioural changes in corporate governance practices.
Read More
Pay, Pressure, Preferences - Executive behaviour study
The CEO renumeration model of companies strongly determines the extent to which they invest in sustainable production and R&D and aim for long-term results. In addition to the remuneration policy, personality characteristics of executives and the focus of shareholders also play an important role. In addition, there is a strong correlation between these three factors
Read More
Review of the Sec's proposal of "Enhancement and Standardization of climate-related disclosures for investors"
On March 21st, 2022, the United States Securities and Exchanges Commission (SEC) issued a formal proposal to implement and standardise climate-related disclosures by U.S. registered companies.
Read More
An introduction to the EU taxonomy
The launch of the European Green Deal in December of 2019 set off a chain of legislative reforms and governmental action planning.
Read More
Response to the Dutch Corporate Governance Codeproposal for update
Reward Value Foundation welcomes the Corporate Governance Code Monitoring Committee (the Committee)’s ambitions to update the Dutch Corporate Governance Code (the Code) and strengthen its alignment with sustainable corporate governance and stakeholder-value creation.
Read More
Response to the proposed directive on Corporate sustainability due diligence
On the 23rd of February 2022, the long-awaited outcome of the European Commission’s Sustainable Corporate Governance Initiative was made public.
Read More
EU framework of sustainable finance regulations overview of architecture
Over the past few years, ‘sustainability’ has established itself as acritical factor for consideration in the world of business.
Read More
Lab experiment for a new compensation model
Companies aim to create value to its stakeholders. Increasingly, these stakeholders are not limited to shareholders, but also include society at large and the environment.
Read More
Managerial and Capital Market Short Termism
Short-termism is an issue, as a result of investors nearsightedness, but definitely as a result of poorly designed executive remuneration.
Read More
A world that works but for whom?
Executive remuneration has become a central point in corporate governance debates and at the Annual General Meetings (AGM) of companies.
Read More
Rewarding stakeholder long-term value creation
Executive remuneration today is driven by incentives that may no longer align with shareholder interests or reflect broader societal responsibilities.
Read More
Sustainable Remuneration: The three P's: Purpose - Performance - Pay
Where many companies have embraced the triple bottom line of people, planet and profit into their purpose statements, the realisation of such a statement is dependent on three different P's: Purpose, Performance and Pay.
Read More
Establishing Uniformity & Transparency in Sustainability Metrics
Businesses are incorporating ESG measures into their policies and procedures, asset managers are establishing criteria for responsible investing in accordance witht he UNPRI guidelines and asset owners are influencing companies to incorporate the SDG's as established byt he UN Global Compact.
Read More
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Publications

Strategic board decision-making
This Research Memorandum documents the execution of a classroom experiment focused on directly measuring and assessing the behavioral and decision-making changes induced by compensation in a group decision-making context.
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Shareholders' rights directive
Companies hold an increasingly important position in society. Over the past few years, regulators have become more and more aware of this role and have sought to design policy that incentivises corporate entities towards behaviour that creates value for stakeholders. One important stakeholder is the shareholder, who have a potentially powerful role in steering companies towards these goals. The evolution of the SRD will be analysed in this background note, with a focus on explaining the Say on Pay provisions introduced by its 2017 amendment.
Read More
High stakes and important stakeholders: Lessons for the EU from the dutch approach to corporate governance
The intent of this paper is to explore the various manners in which the Dutch Code promotes these objectives, and how its provisions might guide the development of a unified approach to sustainable corporate governance at the EU level.
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Binding and advisory votes on executive remuneration reports
A comparative study on say-on-pay legislation and practices in key jurisdictions. In this study commissioned by Eumedion, the status and efficacy of current Dutch say-on-pay frameworks were evaluated in comparison with several other key jurisdictions
Read More
Reward Value's analysis of the Corporate Sustainability Due Diligence Directive
The CSDDD proposal is an important step forward for a sustainable evolution of governance practices. However, there is still room to unlock its full potential as a transformative and influential instrument. Reward Value believes that proactive intervention in the area of sustainable corporate governance is needed, and that executive remuneration can be leveraged to incentivise behavioural changes in corporate governance practices.
Read More
Pay, Pressure, Preferences - Executive behaviour study
The CEO renumeration model of companies strongly determines the extent to which they invest in sustainable production and R&D and aim for long-term results. In addition to the remuneration policy, personality characteristics of executives and the focus of shareholders also play an important role. In addition, there is a strong correlation between these three factors
Read More
Open letter in response to the request for public comment on proposed U.S. climate change disclosures
The U.S. Securities and Exchanges Commission (SEC) has released a request for public comment regarding the content of their proposal to implement and standardise climate-related disclosures by U.S. registered companies. Comments are encouraged to provide analysis of “any aspects of the proposed amendments, other matters that might have an impact on the proposed amendments, and any suggestions for additional changes”.
Read More
Review of the Sec's proposal of "Enhancement and Standardization of climate-related disclosures for investors"
On March 21st, 2022, the United States Securities and Exchanges Commission (SEC) issued a formal proposal to implement and standardise climate-related disclosures by U.S. registered companies.
Read More
An introduction to the EU taxonomy
The launch of the European Green Deal in December of 2019 set off a chain of legislative reforms and governmental action planning.
Read More
Response to the Dutch Corporate Governance Code proposal for update
Reward Value Foundation welcomes the Corporate Governance Code Monitoring Committee (the Committee)’s ambitions to update the Dutch Corporate Governance Code (the Code) and strengthen its alignment with sustainable corporate governance and stakeholder-value creation.
Read More
Response to the proposed Directive on Corporate Sustainability Due Diligence
On the 23rd of February 2022, the long-awaited outcome of the European Commission’s Sustainable Corporate Governance Initiative was made public.
Read More
EU framework of sustainable finance regulations overview of architecture
Over the past few years, ‘sustainability’ has established itself as acritical factor for consideration in the world of business.
Read More
Lab experiment for a new compensation model
Companies aim to create value to its stakeholders. Increasingly, these stakeholders are not limited to shareholders, but also include society at large and the environment.
Read More
Managerial and Capital Market Short Termism
Short-termism is an issue, as a result of investors nearsightedness, but definitely as a result of poorly designed executive remuneration.
Read More
A world that works but for whom?
Executive remuneration has become a central point in corporate governance debates and at the Annual General Meetings (AGM) of companies.
Read More
Rewarding stakeholder long-term value creation
Executive remuneration today is driven by incentives that may no longer align with shareholder interests or reflect broader societal responsibilities.
Read More
Sustainable Remuneration: The three P's: Purpose - Performance - Pay
Where many companies have embraced the triple bottom line of people, planet and profit into their purpose statements, the realisation of such a statement is dependent on three different P's: Purpose, Performance and Pay.
Read More
Establishing Uniformity & Transparency in Sustainability Metrics
The importance of a sustainable society has become clear to most people. Businesses are incorporating ESG measures into their policies and procedures, asset managers are establishing criteria for responsible investing in accordance witht he UNPRI guidelines and asset owners are influencing companies to incorporate the SDG's as established byt he UN Global Compact.
Read More
Previous
Next