Jolande Sap: ‘The Remuneration Policy Is Not Yet An Engine of Change’

You have tried to influence through politics and business. Which role is most effective in bringing about the shift to sustainability and long-term value creation?
‘On my good days, I think it works in both areas. Ultimately, politics sets the ground rules of the socio-economic system, although these are largely international as well and multinationals can partially evade them. Nevertheless: When it succeeds in the political arena to really change something, it has great impact. Unfortunately, those moments are very rare. The change you can make in business covers a much smaller domain, but you are closer to the steering wheel and achieve results faster. The big social changes that are needed must come about from all these places, and I see that happening now. Many forces are moving in the right direction. If that undercurrent is strong enough, things begin to tilt for the better.
The most recent CEO study by the United Nations and Accenture, in which CEOs from more than 100 countries give their views on opportunities and challenges for business, shows that executives are feeling increasing pressure from consumers, lenders and shareholders alike to change. Even in the financial world, there are more and more major parties who are looking more broadly than just short-term profits and really looking at the impact to be realized. From that I draw a lot of hope.’

Of the 2,700 CEOs participating in that study, only about 200 are from the United States. I find it worrying that such a large economic market is barely making its voice heard. Are we really approaching a tipping point?
‘As a Supervisory Board member, I've really seen the intrinsic motivation among leaders to become more sustainable grow in recent years, if only because their children and grandchildren talk to them about what they're doing. If you manage to link that intrinsic motivation to new rules of the game, things can move fast. You do need politicians to do that. They have to create a level playing field. This is now happening, for example, through the Corporate Sustainability Reporting Directive, the new EU directive that requires companies with more than 250 employees to report on their impact on people and climate and vice versa: the impact of people and climate on their business operations. That CSRD forces companies to set their sights more on the long term and develop scenarios for that.’

At the same time, the employers' lobby is applying the brakes and the government is not submitting the Responsible and Sustainable International Business Act in its current form. The discussion about the climate for implemention also flares up again and again.
‘That discussion is really a rearguard action. In addition to resistance, I also see a number of companies, such as spice buyer Verstegen and clothing retailer Zeeman, speaking out against it. They point to OECD guidelines that have long required companies to disclose human and environmental risks in their production and trade chains and to develop policies to minimize or eliminate negative impacts. Companies' duty of care has also been enshrined in Dutch and certainly European legislation for many years. The new thing is that NGOs will now legally enforce it. I would actually like to tilt the discussion about the risk of legalization. We have brought this legalization upon ourselves by not acting sufficiently. Judges do not invent new norms, but apply what has been the norm for years.
We should be ashamed of ourselves. Anyone who is really concerned about whether Dutch companies can still keep up internationally should instead take a big step forward and wholeheartedly endorse existing guidelines. If we as Supervisory Board members and executives wait for society to force change, we will really be at a disadvantage. My appeal to the industry's advocates is to listen to the frontrunners more often and not let themselves be dictated to too much by the laggards, as is happening now.’

What do you think keeps leaders from following that latent intrinsic motivation and taking steps?
‘The argument is often that it is not in the broad corporate interest, when in fact it is. There is now enough robust scientific support for the need for change. After the last parliamentary elections, we and a number of parties sent a letter to the House of Representatives in which we advocated making the social duty of care of companies more explicit in the law, so that more concrete handles are created. Together with MVO-Nederland chairman Maria van der Heijden and professor Jaap Winter, I then made a round to a group of Supervisory Board members to ask for support. Very often we were told that they personally supported it wholeheartedly, but would not or dare not make a professional statement about it. That surprises me to this day. I include myself, with my beliefs and motivations, in everything I do.’

How can you "turn on" that intrinsic motivation?
‘Preaching does not help in any case. Ultimately, you will have to touch executives and Supervisory Board members at the level of their values and beliefs, and also simply raise the level of knowledge. Companies will need to meet a whole range of new obligations. This can only work out positively if you do not see the requirements as a compliance exercise, but as an opportunity to future-proof your strategy and business model.
Recent PWC research shows that half of Dutch CEOs expect that their current business model will no longer work in ten years. They really need to address it now to avoid becoming the Kodak of the future. We will not get there by complaining about politics or the business climate or the unfair treatment of business. We must take ownership of our resilience and deal with rapidly changing circumstances. Navigating and steering in the fog is one of the core qualities of leadership.’

At the World Economic Forum in Davos, Reward Value launched the Principles of Responsible Remuneration. For example, we believe that remuneration policies should include incentives and consequences for meeting or missing both financial and sustainable or social objectives. Can remuneration policies linked to long-term value creation help further accelerate the move toward sustainability?
‘In practice, I find that the remuneration policy is not yet an engine of change, but only follows after the discussion about purpose and strategy. You can use the remuneration policy as one of the steering instruments for transition. At KPN, for example, we have linked the variable long-term remuneration to a strong sustainability component: initially to make our products and services as circular as possible, and now to the emission reduction that KPN manages to achieve with its suppliers and customers. I find that incredibly beautiful and courageous.
In all my Supervisory positions I sit on the remuneration committee and at all these companies the share of non-financial indicators in remuneration has increased in recent years. We also put great effort in considering how to put this into concrete terms. For example, the non-financial indicators often used to be paid only if financial targets were met. We have removed that condition in a number of places, so that the non-financial indicators are judged on their own merits. This does not immediately make shareholders incredibly happy, but it is an important step towards a remuneration policy that reflects the interests of all stakeholders.’

In practice, the discussion in the Netherlands is less about the remuneration structure than about the level of salaries of top Executives. Do you agree with the argument that you simply have to pay top salaries to bring in quality?
‘It is difficult to counter that argument, because some people do come only if the total rewards are at a certain level. At the same time, the question is whether someone who is so strongly driven by income really has the quality you are looking for. Many studies show that above a certain level - about a ton and a half - more money hardly leads to better performance and certainly not to nicer people. Money corrupts and lots of money makes one less empathetic. I did have discussions about this in my early days as a Supervisory Board member, including one-on-one with executives. I would often hear: "It is not about my own remuneration. I think it is ridiculously high too, but I cannot do anything about it because my colleagues..." And they all say that, so they are kind of holding each other captive.
My conclusion is that it really takes a change of mindset among executives themselves to break this. This is not happening yet. At least from the Supervisory Board, I have not found a way or moment to really change that. Still, we need to keep the discussion going. A company's performance is not only the result of leadership, but of the entire working community. So the pay structure should at least reflect real relationships, but even that discussion is not yet prioritized on the table of Supervisory Board members.’

Should the government intervene and set a socially responsible profit and remuneration level?
‘That is really only possible in an international context, but the idea that you can only get the best people if you pay a lot is not justified anyway. That argument was also heard in 2013 when the Top Income (Standardization) Act came into effect, with remuneration caps for institutions in the public and semi-public sectors. At the time, I was an executive at Arkin, a large mental health institution in Amsterdam. The then managing director ended up in a phasing out process because of that law. I saw that that really hurt, but once we got through that, we were able to talk about his intrinsic motivation and how we might be able to reward him in other ways. For example, it turned out he had the ambition to do more for the whole sector. You can then give that space, if things are going well in your own organization. Once you get rid of that eternal discussion about the money, in my experience, you can have the real conversation about where you want to go as a company and as an executive.’

Does your militancy sometimes meet resistance from fellow Supervisory Board members, or do you consciously choose to serve on Supervisory Boards at companies that are already change-minded?
‘It is kind of the latter. After I left politics, I received the very valuable advice to go with the flow a bit more often, after I had previously gone against the flow very often. I have been doing that for ten years now. I have since come to the conclusion that, given the urgency of the climate issue, it is important for executives and Supervisory Board members to seek out a little more discomfort. This also applies to me personally. If opportunities arise again in the future, I may have to choose places where much more scouring is needed in order to get the dialogue started.’

This article is published in Management Scope 03 2023.