ESG metrics in pay matter. We explain why, outline our expectations for companies in this area and detail our engagement efforts and the progress made.
Historically, executive pay has incentivised leadership to increase traditional measures of issuer performance such as revenue or operational efficiency. Now, as the world shifts its concept of corporate materiality and impact to include environmental and social matters, issuers are increasingly integrating sustainability goals alongside more traditional executive compensation key performance indicators (KPIs). These range from emissions reductions to workplace diversity targets – and, if achieved, can benefit stakeholders beyond just shareholders such as staff, society, and the environment.
In 2021, more than half of S&P 500 issuers – and nearly half of FTSE 100 issuers – included at least one ESG metric in executive incentive plans.
- In 2021, Shell increased the weighting of its energy transition condition in the long-term incentive plan (LTIP) to 20%.
- Since 2021, McDonald’s has factored diversity goals into executive bonuses.
- Since 2020, Siemens has weighted 20% of stock awards for its managing board on an internal sustainability index based on three KPIs, including CO2 emissions.
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Read more about ESG metrics and executive pay, our expectations for companies and the progress we’ve been making through our engagement efforts. Download the full viewpoint to discover more.
