The Advisors' Blog

Mastercard is going “all in” with motivating corporate ESG performance. In its recently filed proxy statement, the company says that investors approved of the ESG modifier that it applied in 2021 to annual incentives for senior execs (including NEOs). Due to that warm reception, it’s expanding the ESG incentive structure to all employees.

This is one of the first companies to make this move, but it may be something that becomes more common. The other piece of this that may signal a broader shift and give a roadmap to other companies is that the metric is based on emission reduction goals and disclosure. I’ve blogged that human capital, culture & DEI metrics tend to be more common for US companies right now – but there are some examples of environmental-related goals, and now we can add a high-profile company to the list. Page 88 of the proxy explains:

In addition to the annual incentive changes described on pg 77, the operational carbon neutrality metric was replaced for 2022 by two environment-based metrics measuring performance against our 2025 SBTi goals of reducing Scope 1 and 2 carbon emissions (based on a 2016 base year) and supplier engagement responsiveness to reporting to the CDP and disclosing greenhouse gas emissions information. The ESG modifier was also expanded to apply to all employees across the company (for 2021, the ESG modifier applied only to our senior executives, which includes our NEOs).

This is a development worth noting because it comes at the same time that two bigger trends are advancing. First, compensation committees are expanding to oversee broader “human capital” issues – including employee pay programs, employee morale, and employee impact performance. Simultaneously, there are broader calls for directors to oversee ESG strategy & performance. Encouraging rank & file employees to achieve ESG goals may be a way for some companies to kill two birds with one stone.

As always, your mileage may vary. In order to be able to pay for ESG performance and avoid unintended consequences, you need to be able to set a workable strategy, measure performance, and disclose results. Are you and your comp committee ready? In addition to the executive pay disclosure issues that we can help you tackle on this site, we have a bunch of resources to help with the ESG journey over on PracticalESG.com – sign up today and join a growing group of impressive members.

– Liz Dunshee