January 6, 2021
Using ESG as a Modifier for Annual Bonuses
– Lynn Jokela
I blogged earlier this week about a Willis Towers Watson survey that showed over the next several years we’ll likely see an increase in how companies use ESG metrics with executive incentive plans. Yesterday, Reuters reported that Apple is one company making a change – starting in 2021 the company will incorporate an ESG modifier in its annual cash incentive program. Here’s an excerpt from Apple’s 2021 proxy statement:
Beginning in 2021, an environmental, social, and governance modifier based on Apple Values and other key community initiatives will be incorporated into our annual cash incentive program. This change is intended to further motivate Apple’s executive team to meet exceptionally high standards of values-driven leadership in addition to delivering strong financial results. The financial performance measures and the threshold, target, and maximum payout opportunities under our annual cash incentive program for our named executive officers will not change. However, the Compensation Committee will use the modifier to determine whether to increase or decrease the bonus payouts by up to 10% based on the Compensation Committee’s evaluation of our named executive officers’ performance with respect to Apple Values and other key community initiatives during 2021.
As Reuters notes, the company cites the new ESG modifier in its opposition statement to a shareholder proposal relating to executive compensation. The proxy statement doesn’t give details about how the company will measure ESG progress so we’ll likely wait until next year to understand more about the impact the new modifier has on executive compensation but it sends a message that the company intends to measure and incent ESG progress.