A trifecta of global events—the coronavirus pandemic, economic uncertainty, and the social justice movement—has significantly accelerated the need for companies around the world to link environmental, social, and governance (ESG) initiatives to their executive incentive plans, according to a recent poll conducted by global advisory firm Willis Towers Watson.
The poll, performed across September and October, reflects responses from board members and senior executives at 168 organizations throughout North America, Europe, Asia, Africa, and the Middle East. Among the key findings, 78 percent of respondents said they plan to introduce ESG measures into their executive incentive plans over the next three years.
Additionally, 33 percent said they plan to increase the prominence of environmental and social/employee measures in their incentive plans.
“With institutional investor interest in ESG and sustainable investing increasing, companies are maintaining or accelerating their focus on ESG initiatives,” said Shai Ganu, global head of the executive compensation team at Willis Towers Watson. “We know from our research and consulting that companies’ focus is on a stronger alignment of executive compensation plans and ESG priorities, particularly with climate change and environmental measures, inclusion and diversity matters, and overall human capital governance.”
Respondents to the poll further identified numerous challenges they face to using ESG metrics in incentive plans. The top three challenges cited were target-setting (52 percent), performance measure identification (48 percent), and performance measure definition (47 percent).
Companies are also taking various actions to review their workforces through an ESG lens, the survey found. For example, 46 percent said they’ve deployed listening strategies to engage with their employees, while 30 percent said they’ve created a new executive role to drive ESG strategy and have identified new positions in their companies to help achieve their ESG strategy.
Additionally, half of respondents said they either plan to review their culture to ensure ESG is embedded throughout their organizations or are considering doing so in the future. Other matters boards or board committees plan to address within the next three years include wellbeing (financial, physical, emotional, and social); fair pay; training and reskilling; human capital risk; inclusion and diversity; and more.
The poll also found that in North America, 73 percent of respondents said they’ve implemented at least one initiative to promote inclusion and diversity within their organizations, with another quarter planning or considering doing so. Among the poll’s other findings: 43 percent have conducted a pay-equity analysis; 46 percent have established or have supported internal inclusion and diversity networks and another 32 percent are planning or considering doing so; and 44 percent have increased their communication of policies and benefits that promote an inclusive culture.
“Although companies are revising their use of ESG measures to support their executive pay programs, it appears more work needs to be done,” said Ryan Resch, managing director of executive compensation at Willis Towers Watson. While 84 percent of companies are developing ESG implementation plans, and 81 percent have identified ESG priorities, less than half (48 percent) have incorporated ESG plans into all aspects of their businesses—strategy, operations, and products and services offerings.
This finding highlights companies are on different parts of their ESG journey, according to Willis Towers Watson. Still, most respondents (78 percent) believe ESG is a key contributor to stronger financial performance.