More and more companies are integrating ESG goals into executive incentive plans. Phil Johnson and Tara Tays from Pay Governance, hkp// group strategic alliance partner for North America and Asia, report on how this is being done in a compact article.
Has there been a shift toward more quantitative ESG metrics?
According to a review of S&P 500 companies’ practice of incorporating ESG metrics into executive incentive plans, there was a seven percentage point increase in the prevalence of ESG metrics in incentive programs from 2021 to 2022. The incorporation of ESG in incentive plan designs continues to be a growing practice, with 72 percent of S&P 500 companies including some form of an ESG metric in their incentive plans. The most common ESG category found in incentive plans continues to be social-related metrics. However, we do note an eight percentage point increase in environmental metrics over the past couple of years, while the use of governance metrics has remained relatively flat.