The Advisors' Blog

– Liz Dunshee

Last month, I blogged that directors are split on whether to incorporate E&S metrics – like diversity – into incentive plans. This Farient Advisors blog says that more companies are saying that they pay for E&S accomplishments – but the metrics aren’t well defined and are tied to only a small portion of pay. In other words, they seem to be rooted in “virtue-signaling” rather than well-considered strategic plans – so executives perform accordingly, and shareholders remain dissatisfied. Here’s an excerpt:

The Farient team examined compensation plans from companies in the Russell 3000 and found that E&S compensation metrics are almost exclusively used in determining annual bonuses. As would be expected, we found a concentration of companies – 57 specifically – in the energy, materials (think mining) and utilities sectors that were using environmental compensation metrics in these plans. Twenty five of these companies were in the S&P 500. But other metrics in the E&S category were few with only 18 companies using metrics around “diversity” and nine using “sustainability.”

In examining these plans more closely, we found many of the companies combine E&S compensation metrics with other metrics into an overall category that is generally not weighted more that 10 percent of the overall short term incentive award. And, in addition to not being tied to a significant amount of compensation, the goals around these metrics aren’t generally well defined or aren’t disclosed at all.