NEW YORK--(BUSINESS WIRE)--According to a recent comprehensive survey by Pay Governance, a major board-level executive compensation advisory firm, nearly all U.K. and EU companies surveyed included environmental, social and corporate governance metrics in their incentive compensation plans, compared to less than one-fourth of U.S. companies surveyed. In addition, U.K. and EU companies had a much higher rate of ESG inclusion in long-term incentive plans.
Pay Governance’s study was developed to determine if companies are responding to the recent attention to ESG and, if so, whether it is resulting in a change in the design of incentive compensation plans.
Some 90 percent of the 30 U.K. and EU companies said they included ESG metrics in their incentive compensation plans. One U.K./EU company that did not include ESG metrics in their 2020 incentives disclosed to its shareholders that ESG metrics would be included in both the 2021 annual and long-term incentives. The research revealed that 89 percent of the U.K./EU companies included ESG metrics in the annual incentive and 41 percent in the long-term incentive.
By contrast, U.S. companies surveyed indicate that 21 of the 95 participating companies (22 percent) included ESG metrics in their 2020 incentive compensation plans. Of the companies including ESG metrics in incentive plans, 95 percent included them in the annual incentive and 5 percent included them in the long-term incentive.
“Our research confirmed that U.K. and EU companies are well ahead of the U.S. in the inclusion of ESG metrics in incentive plans, and their approach to measuring and rewarding ESG achievements could be a harbinger of strategies used by U.S. companies over the next several years,” said Pay Governance Managing Partner Lane Ringlee.
Further, as Pay Governance Partner John Ellerman suggests, once adopted by U.S. companies, it will be difficult to turn back.
“Many U.S. companies are conducting their materiality assessments to select the metrics and goals that will have the greatest impact on the company’s long-term performance. Thus, as noted in our March Viewpoint newsletter, we continue to believe many [U.S.] companies will use 2021 as a ‘launching pad’ for finalizing and rolling out ESG metrics in 2022 incentive plans,” he said.
Pay Governance LLC is an independent consulting firm focused on delivering advisory services to compensation committees. The consultancy also advises the management of companies in situations in which the firm does not serve as the independent committee advisor. Pay Governance has locations throughout the United States in New York, Boston, Detroit, Philadelphia, Pittsburgh, Atlanta, Chicago, Dallas, Cleveland, St. Petersburg, San Francisco and Los Angeles. The firm also has strategic affiliate relationships with Pay Governance Japan and Pay Governance Korea. For more information, visit www.paygovernance.com.
