Global businesses have reached a sustainability inflection point. Stakeholder expectations and heightened investor scrutiny are putting organizations under pressure to articulate their societal roles more clearly, prioritize environmental and social objectives within their business strategies, and demonstrate progress to stakeholders. We also know that employees are prioritizing their employment decisions based on an organization’s purpose, culture, ESG goals, and diversity, equity and inclusion (DEI) priorities. Yet for the most part, corporations have been neglecting a powerful lever for advancing their sustainability agendas: executive compensation.
Linking Executive Pay to Sustainability Goals
Five questions to help companies align ESG priorities with executive compensation.
February 07, 2023
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Summary.
Research shows that organizations that adopt a long-term incentive scheme for their executives display more “long-termist” behavior such as investing in innovation and stakeholder relationships. But while the efficacy of tying incentives to long-term outcomes is well established, many organizations are still dragging their feet and failing to incorporate such incentives into their executive’s pay packets. Five questions that can serve as a helpful starting point for companies to develop sustainable compensation programs. What is the goal? What ESG targets are material to the organizations performance? What weighting will sustainability-linked measured be given over what timeframe? What are the targets? And what disclosures will be made to the investing community and other stakeholders.