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ESG Becoming Factor In Majority Of Incentive Pay Plans


July 1, 2019 | Forbes


ESG is becoming a factor in a majority of executive pay incentive plans, according to a new study by Mercer, the world’s largest human resources consulting firm.
Currently 51 percent of firms are either using or planning to use ESG as a goal for executives to try to boost their earnings, the report notes.
Three times as many businesses are using ESG as short term incentives than long term incentives.
The amount of money executives can gain by achieving the objectives is small, generally 5 percent or less of their total incentive.
By letting generally all incentive plan participants know they can do better by doing good, making ESG as a carrot in compensation can be a way of a promoting socially-responsible mindset throughout a business, the authors contended.
“ESG incentive plan metrics alone would likely not create lasting change, but they are an effective mechanism to signal what is important to the organization and to reinforce other efforts aimed at fostering a culture that encourages employees to meet growing expectations that organizations operate in an environmentally and socially conscious way,” said Mercer Principal Peter Schloth.
The “E” is the most used of “ESG” in compensation incentive plans with environment in 66 percent of them
“S” (employee engagement/culture) appears in 37 percent with “G” (diversity and inclusion) in 18 percent.
A survey of 135 public, private and not-for-profit companies in May found ESG pay incentives were used most in mining & metals firms (82 percent) and energy (52 percent).
“The high usage of environmental metrics in the …sectors is not surprising, since their dynamic business models are increasingly reliant on the diligent use of natural resources while protecting the environment,” said David Cahn, a Mercer compensation consultant.
High tech is the lowest at 13 percent.
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