The Advisors' Blog

I blogged earlier this year about Mastercard expanding its ESG incentive structure to all employees. I wondered whether other companies would start to do this – especially in light of the evolving comp committee focus on “human capital” issues.

This recent 48-page report from PwC supports the notion that it’s early days on using ESG incentives below the senior management level, but says that Mastercard isn’t the only company that’s made the jump. The practice may become more widespread as companies continue to advance their ESG strategies – and it’s worth watching. Here’s an excerpt:

Most companies interviewed said that ESG metrics in pay only apply to the executive directors, executive committee, and their direct reports. This is either because the metrics only apply to the LTIP which already has a small eligible population, and/or because companies say there is insufficient line of sight and ability to influence results deeper in the organisation. The typical weighting is 10% to 20% in the annual and/or long-term incentive.

For the minority of companies interviewed that incorporate ESG metrics in pay across the wider workforce, it is typically in the annual incentive. Several companies commented that ESG-related objectives may still feature in an individual’s personal objectives across the wider workforce, and this may influence decisions on their own annual pay awards and/or bonus.

The report also notes that practices can vary by country and industry. Inclusion of ESG metrics is very low in the Netherlands, despite the strong focus on stakeholders there, due to general skepticism of “pay for performance.” I’ve blogged about that philosophy on a few occasions.

– Liz Dunshee