NEW YORK--(BUSINESS WIRE)--Pay Governance, a major board-level executive compensation advisory firm, conducted a survey of companies in January to document how they are responding to the focus on environmental, social and corporate governance (ESG) issues and whether it is resulting in a change in the design of incentive compensation plans.
- Establish if companies had already incorporated ESG metrics into either their annual or long-term incentive plans
- Determine if companies that had not included ESG metrics in prior incentive plans were adding or considering adding them to their 2021 incentive plans
- Ascertain if companies that had already incorporated ESG metrics in incentives plans were retaining the same approach or altering either the metrics or plan design
- Develop a more detailed understanding of the specific ESG metrics selected and how they are measured to better equip companies that are considering including ESG in their incentive plans with key design details
- Get a better understanding of shareholder input into the use of ESG in incentive plans
“In reviewing the survey results, we found some emerging trends and considerable insight into the mechanisms, metrics, weightings and shareholder views for including ESG in incentive compensation programs,” said Pay Governance Partner John Ellerman.
The survey revealed that an increasing number of companies are including ESG metrics in their incentive plans in 2021, with most utilizing social and environmental metrics.
“The inclusion of ESG metrics in incentive plans is perhaps one of the most significant changes in executive compensation in more than a decade”, said Pay Governance Partner Mike Kesner. “As an emerging trend, several companies have selected approaches, such as the scorecard approach, that provide a high level of flexibility, but have also incorporated metrics that can be measured quantitatively, for example employee engagement, diversity/representation levels, reduced waste, etc., to provide goal clarity and measure progress towards longer-term objectives.”
Most companies surveyed are taking a “wait and see” approach to incorporating ESG metrics in their incentive plans, he added.
Pay Governance expects many companies will use 2021 as a “launching pad” for finalizing and rolling out ESG metrics in 2022 given the strong interest of institutional shareholders and the investment community in ESG.
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.