ESG in incentives

ESG / By

WHAT YOU GET…

ESG metrics in incentives is now common. But too often on a “Bolt-On” basis to the current incentive structure.

Many investors encourage this a few expect and demand it. 2022 IA Remuneration Guidance says explain disclosure is needed if ESG is in company strategy – but not in executive compensation.

The Harvard Law School March 2022 study of company using ESG in incentives was extremely critical, saying:

  • Too few metrics
  • Weight insignificant
  • Targets too soft
  • Disclosure and definitions poor.

They claim the incentive impact is low, misdirected, and soft towards executive pay out.

Maybe. But perhaps the expectations are overblown.

ESG in incentives does deliver:

  • strong examination of Corporate Purpose
  • Debate on Profit, People and Planet balance
  • Primary ESG metric selection and definition
  • New or upgraded measurement systems
  • “First stab” target setting experience
  • Strong signal of intent to shareholders and others

Their question:

“What don’t you get on ESG?”  is sterile.

The better question is:

 “What happens next on ESG?”.

So, watch this space.

Links to:

Reference for market data – https://www.e-reward.co.uk/executive-pay/reports

Harvard article – https://corpgov.law.harvard.edu/2022/03/09/the-perils-and-questionable-promise-of-esg-based-compensation/

Corpgro website on comments – https://corpgro.co.uk/blog/category/esg/

Allianz Global ESG announcement – https://www.allianzgi.com/en/our-firm/esg/documents

Cervian capital announcement – https://www.ceviancapital.com/wp-content/uploads/2021/03/03.03.2021-Cevian-Capital-Requires-ESG-Targets-in-Management-Compensation-Plans.pdf

IA Remuneration guidelines and cover letter – https://www.theia.org/sites/default/files/2021-11/Principles%20of%20Remuneration%202022%20-%20Final.pdf

Robert Head

Lead Consultant

Robert works with organisations of all types as a reward consultant or interim reward professional providing reward solutions, interim management and consultancy.​
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Robert is experienced in working across multiple sectors (including public listed, private equity, commercial, financial, non-profit, and charity).​
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Robert has deep subject matter reward experience in corporate governance, executive reward, remuneration committees, reward strategy, reward policy, annual bonus, long-term incentives, transformation and change, corporate actions, mergers and acquisitions, and restructuring.​
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Robert is experienced in stakeholder management working closely with Chairs and executive directors including CEOs and CFOs, non-executive director members of remuneration committees, members of executive committees including business unit CEOs/Presidents, senior HR business partners and other line executives, senior management in other organisations, outside specialists and advisers, and investors.

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Jane Allen

Lead Consultant

Jane has over 30 years of Reward experience within listed multinational organisations and consultancy environments.​

Her expertise covers Total Reward (strategy and programmes), benefits & wellness, pensions, executive compensation, Remuneration Committee support, annual and long-term incentives, VCPs (value creation plans), M&As and restructuring.​

Jane has successfully established reward teams and best practices for all key reward processes, leading on complex local and international issues across UK and US listed, family owned, and PE backed ownership structures.​

She has a keen interest in ESG and how this can be reflected within Executive Pay to align with the long-term sustainability of businesses. ​

Jane is a Fellow of the Pensions Management Institute and a Chartered Insurer. She is an independent Trustee for The Economist Pension Plan.

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Damian Carnelll

founder director

CORPGRO is a reward consultancy specialising in executive incentives particularly those connected with growth; and ESG.​

Damian has extensive experience advising leading companies on all aspects of executive compensation and equity plans. He was previously with Willis Towers Watson, Aon, and Ernst and Young. ​

Damian’s extensive experience in executive compensation and equity plans means he is fully familiar with Corporate Governance norms, institutional shareholder views and proxy voting both advisory and binding.

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Damian Carnell Corpgro