Aligning compensation with business objectives is nothing new. What is new is linking executive compensation to corporate goals for social change. Recently, large companies have begun to tie executive compensation to the achievement of general environmental, social and governance (ESG) goals. These ESG goals include initiatives on climate change, carbon footprint reduction, a focus on alternative forms of energy, and efforts to achieve greater diversity, equity and inclusion (DEI) in the ranks of leadership and staff of the organization. The hope is that linking executive compensation to the achievement of ESG and DEI objectives will improve corporate profitability and human capital management, while responding to internal and external demands for social change. This article will examine how some companies link executive compensation to the achievement of ESG and DEI objectives.
- Which organizations include social change goals in their executive compensation programs?
An estimated 57% of S&P 500 companies disclose the use of some form of ESG to determine annual or long-term incentive compensation results. The ESG+ Incentives 2021 report (Semler Brossy 2021). Another study found that “in the 12-month period to September 30, 2018, 51 S&P 500 companies included a measure of diversity in their compensation package”, but in “the 12-month period to September 1 February 2021, that number had nearly doubled to 99. See “Racial and Ethnic Diversity in the Boardroom” (Glass Lewis 2021).