Schneider Electric: Linking Pay to ESG - Teaching Note

The COVID epidemic had exploded precisely a few days after Schneider Electric -a large European multinational firm specialized in digital automation and energy management- introduced significant changes in compensation schemes which -in addition to financial indicators- included a variety of ESG (Environmental, Social, and Governance) metrics. The case raises critical questions faced by the board of directors during those days. Should they put on hold the recently approved remuneration policy and decide on compensation amounts based on their discretion? How about revising performance targets, as an alternative way to go? Had they gone too far by introducing external ESG ratings in compensation schemes? What was the best way to measure sustainability performance? The described situation provides an opportunity to reflect on the use and design of performance measures in compensation contracts.