ESG playing more into executive compensation: report

Environmental, social and governance issues are becoming a bigger part of executive compensation, according to a new report by Mercer.

In a survey of 135 North American organizations, 30 per cent said they’re currently using ESG metrics in their incentive plans, while 21 per cent are considering doing so. It also found organizations are more likely to apply ESG metrics to their overall incentive plans rather than simply focusing on executive pay.

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The mining and metals industries are using ESG this way, with 82 per cent of respondents in those industries focusing on environmental metrics, followed by energy (52 per cent) and logistics (40 per cent). The insurance and reinsurance sector had no users of ESG metrics, although 43 per cent said they’re considering it. And just 13 per cent of respondents in the technology sectors said they’re considering it.

Notably, Canadian organizations were more likely to use ESG metrics in incentive plans than their American counterparts. More than one in four (28 per cent) of Canadian organizations said they use them in their short-term incentive plans, compared to 16 per cent of U.S. organizations.

Across all survey respondents, environmental concerns were the most commonly used metric, with 66 per cent using them in their short-term incentive plans and 67 per cent in their long-term plans. Social metrics, such as employee engagement and culture, were more likely to be used in long-term incentive plans (58 per cent) than short-term plans (37 per cent). Governance metrics were a distant third, with 18 per cent using them in short-term plans and 17 per cent in long term.

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