An in-depth examination of ESG based incentives for top and middle management – Case company X
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School of Business |
Master's thesis
Authors
Date
2023
Department
Major/Subject
Mcode
Degree programme
Accounting
Language
en
Pages
83 + 14
Series
Abstract
As the ESG (Environmental, Social, Governance) concept has become widely adopted, it has gained the attention of various stakeholders. Companies are aiming to become increasingly sustainable by integrating ESG aspects into their activities. Companies have started to implement ESG incentives not only for top executives but also for other employees to enhance stakeholders’ welfare and gain legitimacy from society. This thesis provides insights into how ESG targets are linked to incentive systems and how this is perceived within the organization on executive and middle management levels. This study contributes to existing literature by providing a descriptive single case study within the logistics industry. In addition to interviewing employees from the case company, this study utilized views from external experts. Consequently, this thesis gives practical implications in terms of ESG incentives for the case company. The main findings can be divided into two categories which are the design and implementation of ESG incentives, as well as perceptions towards them. In terms of design and implementation, the main findings revealed that the company focuses heavily on the social dimension and short-term incentives by utilizing quantitative stand-alone metrics. However, the company has also implemented environmental targets in long-term incentives for top management. In terms of perceptions, perspectives of achievability, fairness, and understandability of incentives were considered. It was found that ESG targets are achievable, but the metrics do not necessarily guide towards the desired sustainability outcomes. In terms of fairness, it was found that targets are set on a group-level which makes it challenging for employees to influence them on an individual basis. Lastly, ESG targets are rarely communicated, which makes them less understandable. In conclusion, ESG incentives are found to be important in the case company; however, areas for development remain present. This is in line with insights generally applicable on this matter gathered from external experts.Description
Thesis advisor
Malmi, TeemuKeywords
ESG, ESG incentives, sustainability, ESG perceptions