January 12, 2023
ESG Metrics in Executive Comp Plans
A recent Willis Towers Watson study highlights the prevalence of ESG metrics in executive comp plans. The firm reviewed public disclosures from more than 800 companies, including S&P 500, FTSE 100, TSX 60 and major European indices. This excerpt summarizes its findings:
In Europe and North America, ESG metrics are used by more than three-quarters of companies when determining executive incentive compensation, ranging from 69% in the U.S. to about 90% in Europe and the U.K. While most companies incorporate ESG metrics into their short-term incentive (STI) plans, measurement of ESG in long-term incentive (LTI) plans has increased sharply over time, especially in Europe (46% of companies) and the U.K. (37% of companies). In the U.S. and Canada, the adoption of ESG metrics in LTI plans remains low (8% and 7%, respectively).
The study found that social metrics feature most prominently in comp plans. Human capital metrics, including talent management, succession planning, DEI, and employee health and safety are the most common. Human capital metrics were used by 68% of European and North American companies.
The survey also reviews how companies incorporate ESG metrics into their comp plans, and observes that they’re used as a separate, weighted metric nearly half of the time. It also provides information on how usage of ESG metrics varies among industries.
– John Jenkins