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17 Jan 2023
by Gemma Carroll

Peter McDonald of NatWest Group on why it’s hard to introduce social targets into executive compensation

How can executive reward teams and remuneration committees include social targets in their strategy while ensuring that their compensation policies are fair?

Peter McDonald of NatWest Group on why it’s hard to introduce social targets into executive compensation.jpg


For many businesses using environmental, social and governance (ESG) targets to measure executive performance, there is relatively little focus on the social part, according to REBA’s recent webinar How Executive Remuneration is Adapting in the Face of ESG Targets, supported by Diligent. 

One third of attendees said they were already using ESG metrics in their executive compensation policies, with another third planning to implement them soon. But for most (39%), the key aspect of these targets was environmental, with only 16% citing a focus on the social element. So, how can social targets be integrated into executive compensation strategy?

Setting social targets

Peter McDonald is the statutory reporting lead at NatWest Group, previously Royal Bank of Scotland. His role includes looking after performance management for the group, some core compensation products and areas of people reporting. This includes ESG measures and how they affect compensation decisions.

He acknowledged that setting social targets is not easy, and nor is making them specific, measurable and auditable.

“We see it in a couple of places explicitly,” McDonald said. “The first is what we would refer to as financial capability: where we as an organisation are able to impart and improve an individual’s financial capability.”

This might be achieved through intervention, whether something like a financial health check or access to online support, which is well developed at NatWest.

“The second would be enterprise,” he said. “For us, this is specifically about how we, as a business, are encouraging enterprise creation for people from diverse and under-represented backgrounds, and those across a wider geographical spread than just the south-east of England.”

Conversations with investors will help determine the weighting of these targets, and how they are designed and reported.

Find a natural fit

Andrew Manktellow, head of executive remuneration at Legal & General Group, added that  while his company’s social targets tend to be around diversity and gender equality, for many sectors of the business they involve direct investments in communities. 

“It’s kinds of infrastructure,” he said, “supporting infrastructure, university infrastructure, building things, particularly outside of the big metropolitan areas and outside of the south-east.” These targets are a much more natural fit for the particular divisions within the business, making them appropriate, accessible and easier to set.

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