Publicly-traded companises have begun to incorporate ESG performance metrics into their executives’ compensation packages as part of efforts to increase transparency on their accountability vis-à-vis shareholders. Almost three out of four S&P 500 companies (73 %) tie executive compensation to ESG performance in 2021 – an increase from 66 % in 2020.
Executive remuneration is always a sensitive subject. Including ESG metrics into executive remuneration has been investors’ most trending and demanded way to push for increasing companies’ ESG performance as well as to hold executives accountable for ESG results. However, the implementation of this link between executive pay and non-financial performance is not yet standard practice.
Detailed data from Vlerick Business School’s Executive Remuneration Research Centre bring insight on how European companies implement this link across sectors.
Looking at remuneration packages in 2021, the weighting of non-financial KPIs is higher in short-term incentive than long-term ones. Moreover, employee-related measures are more frequently used in short-term plans while the most used metric in the long-term incentive structure is the environment.
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”The inclusion of ESG metrics, and more specifically environmental ones, has not yet reached maturity, and its impact on remuneration levels is limited in the face of the compelling and urgent challenges we need to tackle.
If the ‘why’ and the ‘whether’ - to add incentives to achieve ESG targets - are not so much a debate anymore, the ‘how’ remains an open question: In which type of plan? Which are the best KPIs to use, and with which weighting? How do we differentiate the companies that truly drive long-term sustainable value from those that are missing the point?
Find answers and, detailed case studies, in our white paper.
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