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The Guardian: Peg bonuses to worker safety and green success, firms urged (Bill Campbell will be interested in this article)

· Local authority pension funds want pay shakeup
· Rewards given for profits just 1% above inflation

Jill Treanor The Guardian, Monday February 4 2008

Britain’s biggest companies are being urged to radically alter the way they pay their directors by linking their bonuses to non-financial measures such as environmental protection and the safety of employees.

The Local Authority Pension Fund Forum, which represents public sector pension funds with £85bn of assets, has already urged its members to oppose pay policies at oil companies BP and Shell because they do not include any references to the safety of employees.

The forum is beginning a campaign to encourage all FTSE 100 companies to include targets such as employee relations and environmental protection in the performance measurement for directors’ bonuses.

It found only seven FTSE 100 companies had non-financial measures included in their long-term incentive plans to reward directors. Only one company, United Utilities, has a plan that includes more than one non-financial factor.

In the wider FTSE 1000 there were 66 companies that set out so-called key performance indicators to measure non-financial performance.

The forum argues: “Executive incentive schemes that only measure performance against financial targets do not adequately focus executive directors’ minds on the non-financial factors that influence a company’s long-term prospects.”

The matter has become the subject of debate following the safety issues at BP which knocked investor confidence in the company.

The forum’s move to lobby for changes in the way directors’ pay is calculated comes as a new survey finds that company bosses will receive bonuses even though their profits have barely kept pace with inflation.

The centre-right thinktank the Bow Group found that 27% of chief executives in the FTSE 100 have contracts that pay out bonuses even if profits rise by just 1% above inflation. The study focuses on performance shares, which are granted to chief executives if profits rise by a certain amount. These have become very popular and are replacing share options as a way to pay directors.

The Bow Group found that 33 companies in the FTSE 100 use schemes such as these which pay out shares worth two to four times the annual salaries of chief executives.

Christopher Mahon, author of the Bow Group report, said: “Setting very low performance targets encourages a bonuses-for-nothing culture where merely standing still is rewarded.” and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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