This 32-page report from Southlea Group (which is a Canadian executive compensation consulting firm owned by the same group as Farient Advisors) says that ESG metrics are starting to evidence “staying power” globally – even though there’s been some back & forth on whether they are actually valuable.

For the US, the report looks at the S&P 100. It offers this prediction on the direction of ESG metrics (also see this recent report from The Conference Board, ESGauge & Semler Brossy):

Companies will continue to move toward better-defined and articulated alignment between stakeholder and shareholder value. That is, the focus on “value” will overcome a focus on “values.”

The report is useful because (among other things) it shows the stages of incorporating ESG metrics into an executive compensation program, excerpts policies on this topic from select global institutional investors, and shows examples from specific companies of qualitative & quantitative metrics. Page 30 offers these action items for boards to consider:

1. Ask the right questions (see sidebar)

2. Identify measures that are derived from the strategy and can move the needle on sustainable performance

3. Consider the use of stakeholder measures not only in short-term but also in long-term incentive plans

4. Take a broad perspective in considering the use of stakeholder measures, e.g., use of measures inside as well as outside of incentives, alignment up and down the organization, messaging in all types of company communications (internally and externally), impact on culture, and comparisons with peer and most-admired companies

5. Review board governance of stakeholder matters to provide effective oversight. Ensure that governance responsibilities are assigned and overlapping, as needed, to avoid gaps or lapses in oversight

As these action items suggest, the decision of whether – and how – to incorporate ESG metrics is challenging and company-specific. I’ve blogged about common pitfalls specific to DEI metrics, which are the most common non-financial metrics for most companies right now. This Forbes article from McDermott’s Michael Peregrine analyzes the risks of incorporating ESG metrics – including:

– Investor skepticism

– Data controls

– Untested payout levels

– Etra work

– Communication challenges

– The politicization of ESG

– Unreliability of ESG ratings

Visit our “Sustainability Metrics” Practice Area for more guidance on this topic.

– Liz Dunshee

Last week, I announced that I am leaving the Managing Editor role at CCRcorp, effective at year-end. I am extremely proud of what we’ve accomplished across all of our sites, newsletters and events the past few years. Most of all, I am grateful for the relationships that I’ve formed with many of you, and for your willingness to contribute to our resources.

I admire the many smart and practical folks in the executive compensation community who are willing to share their time. Because of you, we are able to deliver step-by-step guidance on what can be a very complex topic. Thank you so much, and please keep it up!!

You won’t see any significant changes as a result of this move. I’m staying on part-time to continue blogging and assisting with our webcasts and events. So, you’ll still get our blog emails each day, and at least in the near-term nothing will change on how those are delivered. John Jenkins, who is terrific and has been an integral part of our team for many years, is taking over as Managing Editor, and I’ll be supporting him in any way I can. I’m also planning to return to private practice at a law firm this spring, so my contributions will be even more informed by direct experience. I’m looking forward to working directly with clients again – and hopefully I will have the chance to collaborate with many of you!

I’ll continue to be reachable at my email here – liz@thecorporatecounsel.net – and on LinkedIn and Twitter. Keep in touch! Thank you again to all of you who read this blog, speak on our programs, reach out with commentary and tips, post on our Q&A forum, and provide support from afar. It has meant so much to me.

– Liz Dunshee

A recent Willis Towers Watson memo looks at how S&P 100 stock ownership & retention guidelines have changed since 2015. The firm’s summary notes that these guidelines haven’t changed much since last year – but there’s been a definitive shift since 2015.

The WTW team shares these predictions about where stock ownership guidelines & retention requirements could be heading:

CEO salary multiples will likely be the main point of interest for ownership guidelines in years to come. Going above 6x salary for the CEO is becoming more common, but it is unclear whether this will turn into the majority practice.

Linking stock retention requirements to ownership guidelines is also worth considering, as the overall increase in companies with retention requirements is largely attributed to guideline-dependent policies specifically. Guideline-dependent policies totaled 83% of retention requirements in 2022 compared with 73% in 2015 (a 14% increase), which is inclusive of companies that used both a guideline-dependent policy and a stand-alone policy together.

– Liz Dunshee