The Conference Board has published the report: “Linking Executive Compensation to ESG Performance”.
As companies address two fundamental and related shifts—the intensified focus on environmental, social & governance (ESG) issues driven by investors, employees, consumers, business partners, ESG rating agencies, and regulators, and the shift to a multistakeholder form of capitalism—corporate boards are not only incorporating nonfinancial matters into discussions of company strategy and business plans, but also increasingly considering ESG performance measures in incentive plans. At the same time, there are concerns about the benefits of incorporating ESG measures into compensation, the risks of doing so (e.g., rewarding the wrong behaviors, setting inadequate targets, and creating guaranteed bonuses), and challenges in providing investors with what they view as sufficient transparency and specificity in ESG-based pay plans. These concerns have now been compounded by skepticism about whether ESG can actually drive financial performance for companies and investors alike.
