ACCA Strategic Professional · Advanced Performance Management · Sustainability

Calder Logistics is considering linking part of its senior managers' bonus to sustainability targets. Currently bonuses depend only on annual operating profit. A director argues that adding a carbon-emission reduction measure with a five-year target will create the best alignment with long-term value. Which design feature would most reduce the risk of managers manipulating the outcome or taking a short-term view?

Use a deferred bonus element with externally verified, strategy-linked targets such as emissions intensity. Deferral promotes long-term behaviour and verification reduces manipulation, whereas annual cash payments, easy targets or unaudited internal estimates encourage short-termism and gaming.

1. APay the whole bonus in cash each year based on that year's emissions
2. BUse a deferred element, with targets externally verified and measured on an intensity basis linked to the strategyCorrect
3. CSet the target so low that it is always achieved
4. DMeasure emissions using internally estimated figures without audit