More UK public companies are incorporating Environmental, Social and Governance (ESG) measures in their executive compensation programs, according to a new study by global advisory, broking and solutions company WTW. Since the previous year, the use of ESG metrics in UK executive incentive plans has grown to 89 per cent, up from 81 per cent as pressures to improve disclosure transparency grows.
Growth is occurring in both short-term and long-term incentive plans in the UK. According to the study, 85 per cent of UK companies tied their short-term incentive plans to at least one ESG measure, up from 79 per cent the previous year, while the number of companies that used at least one ESG measure in their long-term incentive plan rose from 24 per cent to 37 per cent in the last year.
Looking more broadly across Europe, the most prevalent measures companies are using in incentives plans are social metrics (79 per cent). Social measures incorporate multiple categories including HR and people, inclusion and diversity, and employee health and safety. Three quarters of European companies (75 per cent) include Human Capital measurements in their incentive plans. Almost two-thirds (65 per cent) incorporate environmental measures that address areas such as climate change, carbon emission reduction, and responsible use of natural resources. The use of almost all of these measures increased over the previous year.
“Pressure from institutional investors, proxy advisors, employees and other market stakeholders is reshaping the envelope,” said Richard Belfield, WTW. “Companies are beginning to focus on a stronger link between their executive compensation plans and ESG priorities, particularly with respect to climate change and environmental measures, inclusion and diversity matters, and overall human capital governance. And we expect this trend to continue if not accelerate in the next few years.”
“Advances in climate transition such as carbon emission reduction will be a main area of development globally. Leading global companies are monitoring developments across different regions and adapting their programs accordingly. For example, nearly one in two companies in Europe have an ESG measure in their long-term incentive plans, which is significantly higher than other parts of the world,” said Shai Ganu, Global Practice Leader, Executive Compensation and Board Advisory, WTW. “We believe that adopting ESG metrics for executive incentives is a best practice, and we continue to advocate the alignment between ESG priorities with business strategy.”
