North American companies continue to link executive pay programs to ESG measures, WTW study finds
January 24 2024 - 8:05AM
The adoption of environmental, social and governance (ESG) measures
in executive incentive plans continues to increase across markets,
including North America, according to a new global study by WTW
(NASDAQ: WTW), a leading global advisory, broking and solutions
company. The number of U.S. public companies doing so continues to
grow, and similar trends are occurring among companies in Canada,
Europe and Asia Pacific, the study found.
In the U.S., more than three in four S&P 500 companies (76%)
reported in this year’s proxies that they incorporated at least one
ESG metric in their executive incentive plans, an increase from 69%
the previous year and just 52% three years ago. While growth is
occurring in both short-term incentive (STI) and long-term
incentive (LTI) plans, most of the growth is happening in STI
plans. In Canada, four in five TSX 60 companies reported using at
least one ESG metric in their executive incentive plans, an
increase from 68% three years ago. While ESG metrics are still much
more commonly used in STI plans, the prevalence of ESG metrics in
LTI plans has nearly quadrupled in the past three years.
Metrics related to human capital remain the most popular across
all ESG categories, used by 70% of S&P 500 companies and 75% of
TSX 60 companies. Environmental metrics saw a significant increase
in adoption for both markets. Over the past three years, use of
environmental metrics rose from 12% to 44% in the U.S. and from 27%
to 50% in Canada. Within the environmental category, carbon
emissions reduction is by far the most common metric.
“Companies’ interest in tying executive incentive plans to ESG
measures is showing no signs of abating,” said Robert Newbury,
senior director of the Global Executive Compensation Analysis Team,
WTW. “In fact, we are seeing narrower industry gaps in the use of
ESG metrics as we see increased adoption in the IT and consumer
goods industries. The ongoing growth we are seeing reflects the
continued focus from companies across markets and countries to
articulate how ESG priorities are embedded in their business
strategy and how they are seen as a key measure of non-financial
performance.”
WTW’s study also included 328 companies across nine major
indices in Europe as well as 264 companies across seven major
markets in the Asia Pacific region.
The key findings from those companies include the following:
- The prevalence of ESG metrics within executive incentive plans
continues to rise in Europe and Asia Pacific, increasing from 90%
to 93% and from 63% to 77%, respectively.
- In Europe, the use of ESG metrics in LTI plans is common. The
majority of European companies now include ESG metrics in their LTI
plans, mostly in the environmental and climate areas. This
represents a 35-percentage-point increase from 21% to 56% in the
past three years.
- While Europe is ahead of North America in its emphasis on the
environmental and climate areas, human capital metrics remain a top
priority. In Europe, more than 80% of companies use at least one
human capital metric in their executive incentive plans.
“We continue to see pressure from institutional investors to
articulate how ESG and sustainability priorities drive long-term
sustainable value creation. Meanwhile, North American companies are
also seeing greater regulatory pressure on ESG-related disclosures.
We expect a greater emphasis in identifying and measuring
individual elements of ESG most impactful to businesses,” said Ken
Kuk, senior director of Executive Compensation and Board Advisory,
WTW.
About the study
This research study reviews public disclosures from 1146
companies listed in the S&P 500; TSX 60 in Canada; nine major
European indices, including the FTSE 100; and the largest companies
across seven markets in the Asia Pacific region.
About WTW
At WTW (NASDAQ: WTW), we provide data-driven, insight-led
solutions in the areas of people, risk and capital. Leveraging the
global view and local expertise of our colleagues serving 140
countries and markets, we help organizations sharpen their
strategy, enhance organizational resilience, motivate their
workforce and maximize performance.
Working shoulder to shoulder with our clients, we uncover
opportunities for sustainable success—and provide perspective that
moves you. Learn more at wtwco.com.
Media contacts
Ed Emerman: +1 609 240 2766eemerman@eaglepr.com
Ileana Feoli: +1 212 309 5504ileana.feoli@wtwco.com
Willis Towers Watson Pub... (NASDAQ:WTW)
Historical Stock Chart
From Sep 2024 to Oct 2024
Willis Towers Watson Pub... (NASDAQ:WTW)
Historical Stock Chart
From Oct 2023 to Oct 2024