The Advisors' Blog

Meredith blogged last month about trends in ESG metrics at the 100 largest public companies. A new 16-page analysis from Meridian Compensation Partners confirms that practices are consistent between these largest companies and others in the S&P 500 – and mostly unchanged from last year. Here are a few of the key takeaways from the executive summary:

– In 2024, nearly three-quarters of the S&P 500 linked a portion of incentive compensation to the achievement of ESG metrics – unchanged from 2023. Although there is variation by industry, a majority of companies in all sectors use one or more ESG metrics in their executive incentive arrangements.

– A large majority (73%) of companies using ESG metrics do so in their short-term incentive (STI) plans, unchanged from 2023. Alternatively, ESG in long-term incentives (LTI) remains a distinct minority practice with only 11% (9% in 2023) of the S&P 500 doing so. Only in the Utility sector is the use of ESG in LTI majority practice, (57% and unchanged from 2023).

– Unlike traditional financial and operational metrics, most ESG metrics are not individually measured and weighted. Instead, most companies use either scorecards and/or individual performance assessments.

– Social metrics are the most prevalent ESG metric used in incentive plans. In 2024, 68% (up slightly from 66%) of the S&P 500 used Social metrics, while 39% used Environmental and 30% Governance metrics respectively. An additional 26% included metrics that crossed multiple areas, often to address ESG strategy or measure ESG scoring goals. Prevalence for each of these are up slightly from 2023.

The analysis is based on proxies filed by S&P 500 companies between April 16, 2023 and April 15, 2024. The Meridian team offers these predictions based on changes that they are seeing companies make to compensation programs over the past year or so, which have not yet been reported in proxy statements:

While we have not seen material changes in reported practices we noted trends in our consulting that is likely to emerge in subsequent year’s reporting for DEI-related metrics, specifically:

― Less quantitative;

― More subjective;

― Combining with other criteria; and/or

― Some change in terminology (e.g., talent development).

These changes we believe are reflective of recent Supreme Court decisions, that while not immediately applicable to for-profit commercial organizations, nevertheless have been undertaken as adjustments to minimize any similar longer-term risks.

– Liz Dunshee