May 24, 2017
How Pay Can Improve ESG
– Liz Dunshee
In this Pearl Meyer survey, 60% of companies said that ESG issues were a top concern. Not only is there a global regulatory trend to require disclosure on things like environmental & employment policies – but investment dollars are flowing to companies with demonstrably strong ESG metrics & shareholders are demanding that boards & comp committees proactively drive “sustainability” performance.
It can be an intense process to link pay to appropriate ESG measures for your company – but this memo suggests some whys & hows:
– Identify long-standing activities already taking place in your company that fall into the ESG category. Existing HR goals like hiring diversity or environmental, health & safety measures can easily be reported as ESG-related actions. Supply chain practices, energy usage & resource conservation efforts may also apply.
– Consider whether the identified actions are already indirectly represented as a component of some executives’ performance-based pay – particularly health & safety. If present at all, the metrics are most likely indirect & folded into larger measurement components – you may be able to create an explicit link.
– Catalogue the benefits of directly tracking these activities. For one, they can be packaged as a corporate social responsibility report – to meet regulatory requirements or serve as a positive corporate communication tool.
Check out Alcoa and also Exelon for examples of directly linking pay to sustainability goals & other operational metrics.