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Step 5
Step 5: Compensation and performance management
Next to recruitment and competency development, compensation and performance management are central to the HR function. HR is involved in setting performance standards and expectations and monitoring results to performance objectives. At Vancity Credit Union their Statement of Values and Commitments which articulate their CSR principles is incorporated as a key area of accountability in all executive role descriptions rather than as an added attachment at the end of each role description. Going forward they are expanded beyond their three stated values of innovation, integrity and responsibility, translating them to goals in the annual performance plans of all executives to be cascaded down to each of their managers and employees. They believe that by integrating their three corporate values and CSR-oriented Statement of Values and Commitments into their business planning, objectives, and executive role accountabilities, they will continue to sustain and ingrain their differentiator in all that they do. (Personal communication with Susan Karda, Manger, Organization Development & Learning, Vancity, Feb. 25, 2009).
At Vancity and other leading CSR organizations, HR managers are integrating CSR elements into job descriptions, individual performance plans and team goals.
The most critical HR tool of all is the compensation and incentive program. Human resource practitioners understand very well that “you get what you pay for”. Typically companies reward on the basis of financial performance, which will singularly foster profit-maximizing behaviour, overlooking the need to also consider sustainability factors. The total reward and recognition program, including base salary, incentive pay, long term incentives and other non-monetary recognition benefits (such as award programs, employee of the month, promotions, career pathing, etc.), needs to be aligned with the company’s CSR values and strategy. To do less is to guarantee under-achievement of a company’s CSR objectives.
The strategic direction of an organization is set by the CEO and Executive team, however, the HR department can help business units establish CSR targets and develop performance evaluation systems that foster CSR behaviour by providing the right tools and counsel. At The Co-operators Group Ltd., all VPs have a CSR bonusable goal, for example, which generates take-up at other levels throughout the organization. To help with implementation, the VP of Human Resources worked with a task team of VPs to prepare guidance documents for group VPs on potential sustainability goals for incorporation into their performance plans.
In addition to focusing on executives and senior managers, the personal objectives set by each employee could incorporate one CSR objective aligned with the corporate CSR strategy. CSR should be recognized in both the base job responsibilities as well as the annual performance objectives at the individual and team levels. Performance reviews could consider how the employee has advanced their personal and the organization’s CSR goals over the period.
Compensation Case Study: Novo Nordisk
As part of the remuneration package at Novo Nordisk, individuals are rewarded for performance that meets or exceeds the financial and non-financial targets in the balanced score card, which comprise corporate, unit-specific and individual targets. Non financial performance is guided by measures for the company’s impacts on the triple bottomline. These include socio-economic impacts such as job creation, the ability to manage environmental impacts and optimize resource efficiency, and social impacts related to employees, patients and communities. (Sourced Feb. 2, 2009 from Nova Nordisk)
If CSR is built into incentive systems – salary packages and targets that determine whether the manager receives a pay raise, promotion, etc. – the firm is likelier to motivate greater CSR alignment. Certainly the opposite is true. Some examples of non-financial measures include: customer satisfaction, reputation, employee engagement, health and safety, greenhouse gas emissions, etc.
Of course, job descriptions are not revised that frequently, so the opportunity of integrating CSR into every job description throughout a company may be limited, unless a new department is being established or a start-up company is launching. However, as roles, departments and job requirements evolve, this often brings with it the task of fine-tuning job descriptions. These are ideal opportunities for incorporating CSR parameters in the job description – again, it is important that CSR generalities are avoided in favour of specific deliverables and responsibilities.
In any organization there will be key positions that have a significant influence over the organization’s social and environmental performance on a day to day basis, e.g. facilities managers. At The Co-operators this position was recently upgraded to incorporate the firm’s sustainability principles, mandating the Facilities Manager to ensure, for example, that all contracts account for the organization’s sustainability policy.
From time to time there may be instances of significant CSR underperformance or obstruction on the part of some employees, often employees in key positions of influence. A finely tuned incentive program could influence most of this. However, there may be a few instances where a senior influential employee who is not aligned with the strategic CSR direction of the organization needs to be “performance managed” out of the firm or given early retirement, or other exit packages.
Before this step is taken, one needs to be assured that the critical steps for fostering change management, identified in Step 7 below, have been followed. Oftentimes employee resistance comes about because deep-seated concerns or values have been overlooked.
The final check can be during the exit interview process where questions related to CSR and ethical matters can be asked in order to assess the degree to which departing employees perceive values alignment conflicts with respect to the firm’s decision-making. Indeed, every exit interview can inquire into whether the firm delivered on its CSR commitments and lived up to the terminating employee’s expectations.
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