October 19, 2022 Executive Compensation ESG & Human Capital Management Reports

2022 ESG + Incentives Reports S&P 500 Analysis

Examining the prevalence of various ESG metrics in incentives across S&P 500 companies

The adoption of ESG metrics in incentive plans has become the majority practice among S&P 500 companies, aligning with growing stakeholder interest in ESG issues.

Diversity & Inclusion continues to be the most prevalent ESG metric, while carbon footprint has shown the largest increase in prevalence year over year. Additionally, ESG metrics are predominantly included in annual incentive programs vs. long-term incentive (LTI) programs; however, ESG metrics in LTI plans are slowly gaining traction. Within incentive plans, the use of ESG metrics as part of a ‘scorecard’ continues to be the most common design approach.

Consistent with last year’s research, ESG metrics vary across industries but generally align with expected industry priorities. For example, “heavy industries”— Energy, Utilities, and Materials—had the highest percent prevalence of environmental footprint and employee safety challenges, which relate to their business plans. Financials had the highest number of companies using ESG metrics, reflecting the importance placed on talent in this industry. Carbon Footprint is the only environmental metric represented in all 11 industries (an increase from 9 industries last year).

Moving forward, we anticipate that ESG metrics will continue to become more prevalent among S&P 500 companies before hitting an eventual plateau.

Contributors

John Borneman

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