Is Now the Time to Include Sustainability Metrics in Executive Incentives?

We explore the IAC's recommendations, why they could be a big deal for investors, and questions boards can ask to prepare for these potential changes.

ESG metrics are increasingly prevalent in incentives, but disclosure has not kept pace. In recent years, the prevalence of ESG metrics in executive compensation design has expanded.

The companies that succeed will strike the right balance between motivating leaders with incentive plan goals and ensuring fairness amid growing investor scrutiny.

Following an extensive internal diagnostic, companies can focus on key HCM areas including, but not limited to, performance management; succession planning; diversity, equity, and inclusion (DE&I); and culture.

Organizations that lead in DE&I devote meaningful energy from a strategic perspective by aligning DE&I with business strategy, dedicating sufficient resources, and emphasizing accountability.

ESG metric prevalence in incentives continues to increase among S&P 500 companies but at a slower rate than prior years, as market focus shifts to refining existing ESG metric types and structures rather than increasing adoption.

While we don't anticipate immediate clarity on these questions, we see this as an opportunity for companies to reflect on their DE&I policies, practices, and metrics to ensure they align with business and communication strategies.

Directors with human capital expertise can be invaluable at a time when the “war for talent” is raging.