The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

October 25, 2021

ESG Metrics: Bigger Problems If You Get It Wrong

There are a lot of reasons to proceed with caution when adding ESG metrics to your incentive plan. This Compensation Cafe blog from Altura‚Äôs Ann Bares suggests that the downside risks of “unintended consequences” are much greater for things like safety metrics than they are for productivity-based incentives. Here’s an excerpt that gives food for thought:

Unintended consequences, of course, are the bane of all incentive design efforts, but I think the risk of these can be fundamentally unacceptable when it comes to employee safety. The obvious concern with many commonly used safety metrics is that you’ll drive people to ignore or under-report hazards and incidents, but there are concerns that go beyond this obvious one.

Is trying to change safety-related behaviors no different than trying to change productivity-related behaviors? To me, the risks associated with over-reporting productivity and under-reporting safety incidents are simply not of equal severity and magnitude. And so I think I disagree with Borlo and Klapow on the point above.

Should rewards be used to incent greater attention to safety? Is it a good idea to include safety metrics in a broad-based employee incentive plan? I guess my response would be possibly … and only very carefully. At least, this is the approach I’ve taken with the plans I’ve helped develop.

Liz Dunshee