Hiring and rewarding now

How ESG performance should affect companies HR practices and the on-going challenge of attraction and retention of talents were the leading debating points in the Panel discussion on Board Remuneration and Nomination Committees. 

As chair of the Luxembourg Stock Exchange board, and a member of stainless steel firm Aperam’s board, Alain Kinsch works with two organisations with clear ESG ambitions of, respectively, being a leading green assets exchange, and being a sustainable steel company with best-in-class CO2 footprint within its sector. Regarding remuneration and recruitment “it depends on the importance of ESG to the company, and this can’t be a one size fits all approach.” 

For recruitment, he said it is to a large extent about making an assessment of cultural fit. “If the candidate has an inadequate ESG culture versus what the company's culture is, then we have a problem,” he said. As for remuneration, there needs to be clear ESG criteria set, and this for a few key metrics. 

The availability of such metrics might appear to be less clear cut in the banking sector, but according to Karin Scholtes, Global Head of People, Culture and Communication at BIL “the context is set by the regulator…and on top of that…there are criteria related to diversity.” The latter, she added are “always quantitative and qualitative.” She too mentioned how it is important to have the right culture. Within this “we decided to make the respect of the ESG framework as a circuit breaker for remuneration should that not be respected.”

“Does it work?” asked panel co-moderator Fabien Loeffler. For Katrin Wehr-Seiter, managing director at BIP Investment Partners: “it is too early to tell whether defined KPIs actually lead to something, but it's important to have these discussions within companies. Ultimately “what gets rewarded gets done.” Alain had “no doubt” that it will work, but he warned about setting too many criteria. “If you are rewarded on 30 criteria, but then you are rewarding on nothing,” he said.

Regarding board composition, panel moderator Marjolijne Droogleever Fortuyn asked about the use of a skills matrix. All said they had a version of this when considering appointments and succession. “You need to be specific,” said Alain when seeking the right skills and cultural outlook. “For example, if we as a steel company are looking for someone who excels in CO2 reduction, we need someone who has been a champion of bringing transformational change in that area,” he said. However, if you need someone with finance experience, but he/she is not a champion in ESG, that can work too. 

On the tight recruitment market, Alain is relatively relaxed. “We saw this war for talent 10 years ago and 20 years ago, so this is nothing new even if the reasons and dynamics may be different,” he said. ‘First Luxembourg remains despite all challenges still an attractive market for talent on an international basis. The response can be twofold: if recruitment becomes difficult locally, then candidates can be found from across the world, then, of course we need to make improvements to make the Luxembourg market more attractive, especially on housing and personal taxation’, he said.

Nevertheless, he believes the Board Remuneration Committee should be involved to challenge policy. “The danger is that the Board Remuneration Committee in each meeting makes exceptions, so at some point, you need to change the whole framework, instead of making exceptions.”

Karin is not so sanguine about the future of the employment market. “I think that the demographics work against us, so I think that the war for talent will continue to be worse in the years to come,” she said, and for this she is worried that Luxembourg will find it hard to compete. She said boards need to take this matter seriously when considering strategy, but too few have HR specialists as members.