Blog Post

Renewable Vibes > News > Sustainable Living > ESG Metrics and Climate Change Now Influencing Executive Compensation

ESG Metrics and Climate Change Now Influencing Executive Compensation

Two surveys conducted by consulting company WTW have revealed interesting insights into the contrasting situations of executive pay and employee benefits. WTW, which offers global risk advisory, insurance brokerage, and consulting solutions, discovered that 81% of companies incorporate environmental, social, and governance (ESG) criteria into their executive incentive plans. Notably, climate-related metrics are swiftly gaining importance in compensation decisions.

In a separate study, WTW found that multinational corporations are implementing global minimum standards for employee benefits. The percentage of companies doing so has nearly doubled since 2019, increasing from 36% to 70%. This development appears to be positive news for both business leaders and rank-and-file employees. However, it is intriguing to examine the motivations behind these decisions.

This marks the fourth year that WTW has conducted its survey on the utilization of ESG metrics in executive incentive plans. The study analyzed public-domain data from over 1,000 companies, revealing some interesting regional variations that, while unsurprising, are worth noting.

Globally, ESG metrics are integrated into 81% of executive incentive plans, up from 77% in 2022. In the United States, 76% of companies factor ESG into pay, compared to a higher percentage of 93% in Europe.

While most companies primarily incorporate ESG metrics into their short-term incentive plans, long-term incentive plans have also demonstrated a steady increase, particularly in Europe. In the United States and Canada, ESG in long-term incentive plans has tripled since 2019, albeit starting from a low base.

Across the Asia Pacific region, over three-quarters of companies utilize at least one ESG metric in their executive incentive plans. Australia, Singapore, and Japan lead the pack in the region, while other countries are struggling to fully embrace ESG considerations.

Encouragingly, the inclusion of environmental and climate metrics in executive incentive plans has witnessed significant growth, with 80% of European companies incorporating them. The United States has experienced a nearly four-fold increase, reaching 44%, surpassing the Asia Pacific region’s 39%.

WTW concludes that the integration of ESG metrics into executive incentive plans has become universal, with each industry emphasizing the ESG factors that have the greatest impact on their businesses.

Another study conducted by The Conference Board supports WTW’s findings and reveals that ESG metrics applicable to CEOs also extend to other executives. The analysis of the Russell 3000 Index further demonstrates a direct correlation between company size and the inclusion of ESG performance metrics in executive incentive plans. Larger companies are more likely to consider ESG factors in their compensation decisions.

According to The Conference Board, ESG performance metrics vary significantly by sector, with utilities (89.1%) and energy (72.7%) leading the way, while information technology (28.3%) and communication services (35.7%) lag behind.

These surveys highlight the growing importance of ESG considerations in executive compensation and the increasing adoption of global minimum standards for employee benefits. As companies strive to align their practices with sustainability and social responsibility goals, the role of ESG metrics in decision-making processes is becoming more prominent.

Leave a comment

Your email address will not be published. Required fields are marked *