2021 GECN Group Global Trends: The Cross-border Growth in the use of ESG Plus Metrics in Incentives

The Global Governance and Executive Compensation Group (GECN Group) is a global consortium of independent remuneration consulting firms of which Guerdon Associates is a founding member.

For the past few years, the GECN Group has published research on global trends in corporate governance. Last year’s research entitled, “2021 and Beyond: Global Executive Incentive Trends – The Shift to Non-Financial Measures” focused on the efforts companies are making to incorporate ESG and other non-financial value drivers into their executive incentive plans.

These were called ESG Plus metrics. They include traditional ESG metrics and other related non-financial metrics in use.

This year’s research examined year-on-year trends on ESG Plus metrics in incentive plans, particularly changes in response to the COVID-19 pandemic. The scope of research was expanded to include market practice of ESG Plus metrics in South Africa’s JSE Top 40 companies, on top of coverage of the USA’s S&P 100, Canada’s TSX 60, France’s CAC 40, Germany’s DAX 30, Switzerland’s SMI 20, the United Kingdom’s FTSE 100, Australia’s ASX 100 and Singapore’s STI 30.

The research shows Australia continues to lead the world in tying executive pay to ESG Plus performance.

Figure 1: Percentage of companies using ESG Plus Metrics in incentives by sub-metric

Globally, a growing number of overseas companies now incorporate ESG Plus into their long-term incentive plans. This has not been the case for Australia. Short-term incentives continue to be the predominant place for Australian companies to incorporate ESG Plus outcomes in the incentive plans.

Figure 2: Percentage of companies using ESG Plus Metrics in incentives by incentive type

Companies allocate a higher weighting to ESG Plus metrics in short-term incentives than long-term incentives. Australian companies allocate a higher weighting to ESG Plus metrics in both short-incentives and long term incentives compared to overseas companies.

Figure 3: Median weighting of ESG Plus metrics in incentives by incentive type

The full study indicates that across regions and sectors, there is a greater and deeper use of ESG Plus metrics in compensation plans. In fact, now more than 70% of companies in all countries reviewed use such metrics.

The results of our study will assist decision-makers in companies and other organisations to understand what is at stake practically, benchmark themselves to emerging practices, and identify what is next and what management and boards should be doing now to prepare.

The report became available to our clients last month. It is now available, at no charge, to all our newsletter subscribers.

To read the report, which describes the cross-border trends of ESG Plus metrics used in executive incentives, see HERE.

© Guerdon Associates 2024
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