The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

March 4, 2020

Starting the Conversation: ESG and Executive Comp

– Lynn Jokela

I blogged earlier in the year about how, this year, ESG is one area of focus for comp committees.  Depending on your industry and where your company is at with identifying and reporting ESG metrics, the thought of tying ESG to executive comp can seem daunting.  That’s why it’s nice to see this Semler Brossy blog discussing “thought starters” for boards when thinking about integrating ESG with executive comp.

The blog discusses approaches for integrating ESG into annual incentive plans as well as long-term incentive plans.  As noted in the blog, integrating ESG into a long-term plan can seem most intuitive given the long timeframe of most ESG issues.  Given that most companies have several important long-term goals, the blog suggests creating a long-term “scorecard” so that too much value isn’t placed on a single goal.  Here’s some of what it had to say about that:

PepsiCo has five 2025 goals related to water use in high-risk water areas; target payout could be tied to achieving all five, with an above-target payout or early vesting if several goals are met early.  A long-term “scorecard” could also be devised by setting a different long-term ESG goal each year, eventually focusing executives on achieving two or three material goals at any given point and allowing a natural evolution of long-term goals.