Report: Integrating ESG Issues into Executive Pay

Linking environmental, social and governance (ESG) performance to pay can help hold executive management to account for the delivery of sustainable business goals. This report from Principles for Responsible Investment reveals that the integration of ESG issues into executive pay is in its infancy, and further work on the issue is crucial.

Key findings

• Companies should consider the role of their external remuneration consultants and ensure they have the necessary expertise to help select appropriate ESG issues and set metrics.
• Of the 70 companies that incorporated ESG issues into executive pay plans, 84 per cent  incorporated ESG factors into short-term compensation plans, rather than long term incentives.
• 51 per cent of companies measure performance against pre-set ESG targets, in order to determine pay-outs, while a quarter of the sample looks at performance retrospectively.
• A few companies’ programmes stood out as having more sophisticated designs, for example, incorporating specific ESG hurdles before bonuses can be earned under other performance metrics.