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Google Parent Alphabet Announces Bonus Plan Tied To ESG Goals

Image from Martin Katler

Google didn’t get to be one of the biggest brands in the world without recognizing how financial incentives can cultivate the best talent. So it’s no surprise that Google parent Alphabet recently became the latest high-profile corporation to base part of its senior executive bonus program on how well execs support Environmental, Social, and Governance (ESG) goals.

As reported by Bloomberg, the program will launch next year, based on statements Alphabet Chairman John Hennessey wrote in an annual proxy filing. In a letter to shareholders, Hennessy said ESG goals “have long been a key part of Alphabet and Google’s work.”

Among the topics, Hennessey discussed in the letter were workplace diversity and harassment. He said the Alphabet board of directors have agreed on a series of principles and improvements based in part on input from employees and stockholders. The company will also create a Diversity, Equity, and Inclusion Advisory Council made up of senior executives and outside experts. In addition, the board will review the effectiveness of its sexual harassment and retaliation prevention programs every quarter.

Workplace diversity has been a topical issue at the company for years. In June 2018, Industry Week reported on a push by Alphabet employees and investors to tie executive pay to progress on workplace diversity amid workplace human resources concerns.

Activism on the part of employees and shareholders has become more commonplace over the last half-decade or so – not just in terms of workplace issues, but also in terms of corporate sustainability programs. This has led some companies to ensure their leaders are attuned to these issues by tying their performance bonuses to how well they support ESG programs.

Image from Kai Wenzel

In December, Volkswagen AG announced plans to tie its top executives’ bonuses to ESG targets in an effort to appeal to sustainability-focused investors.

A month later, CNBC reported that Apple will add an ESG “bonus modifier” to its cash incentive program. Under this program, successful implementation of ESG goals can increase a senior exec’s bonus by 10 percent, while failing to hit ESG targets could reduce the bonus by the same amount. The program was reportedly inspired by shareholder requests to link executive compensation to ESG.

Alphabet’s decision to tie executive bonuses to ESG continues an overall push by the company to operate more sustainably. As it notes on its website, Google was the first major company to become carbon neutral, a status it reached in 2007. Over the next decade, it became the first company to achieve 100 percent renewable energy. Its goal is now to be the first major company to operate carbon-free, something it aims to do by 2030.

Another way Alphabet has advanced the cause of ESG is through sustainability bonds. In August, the company issued $5.75 billion in sustainability bonds, which was the largest sustainability or green bond issuance executed by any single company.

Proceeds from the sustainability bonds support investments in both environmental and social initiatives. This differentiates them from green bonds, which are issued solely for environmental uses. Eligible projects for Alphabet’s sustainability bonds had to fall within one of these eight areas: energy efficiency, clean energy, green buildings, clean transportation, circular economy, affordable housing, racial equality, and support for small businesses impacted by Covid-19. 

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