Beyond ESG – The facts on non-financial incentive measures in the world’s biggest companies

The 2020 pandemic year brought home the message that companies are more than the sum of their financial parts. Each company relies on levers that are controlled by a variety of stakeholders, including employees, customers, regulators, and the communities within which they operate.

Most media and research publications emphasise the importance of environmental, social and governance (ESG).  However, when the GECN Group set out to undertake a research report into where and how companies are incorporating ESG measures into executive incentives, we found that companies were reaching beyond what was implied by that well-known three letter acronym, instead measuring and paying for a raft of non-financial measures that did not fit neatly into E, S or G.

After undertaking extensive research into all established ESG indices, a literature search on non-financial measures, and a breakdown of all non-financial measures used globally in listed companies, Guerdon Associates developed the ESG Plus™ framework. This encompasses all non-financial performance measures,  which have been categorised as Environmental, Social, Governance, Customer, and Community performance measures. They are distinct from financial performance measures.

Each non-financial incentive measure was mapped to one of these five categories, providing a global database of ESG Plus™ measures used in executive incentives across the leading companies in global markets:

  • US S&P 100
  • Canadian TSX 60
  • European CAC 40, DAX 30 and SMI 20
  • UK FTSE 100
  • Australian ASX 100; and
  • Singaporean STI 30

This data was supplemented by interviews from leading corporate directors, investors, and governance professionals to provide context and narrative.

Significant findings from our research include:

  • Use of ESG Plus™ measures in incentive plans is significant. 67% of companies in the regions we studied now use such measures in their incentive plans. While most of these measures populate short-term incentive plans, ESG Plus™ measures are now starting to appear in long-term incentives as well.
  • The prevalence of ESG Plus™ measures in incentives differs significantly by region. Australia leads in the use of these measures in executive incentives with an 81% prevalence, whereas the U.S. lags Australia and Europe at 56%.
  • The prevalence of ESG Plus™ measures in incentives differs significantly by industry sector. Utilities, Financial Services, Energy, and Materials companies are the most frequent users of such measures, whereas Information Technology and Consumer Discretionary companies are the least frequent users of ESG Plus™ measures.
  • Companies are following their own compass. They, themselves, are driving the quest for ESG Plus™ value. They are not doing so only in response to external forces, such as investors, proxy advisors, environmental activists, unions, or regulators.

The ESG Plus™ framework and results of our study will assist companies and other organisations to understand practically what is at stake and benchmark themselves to global standards to identify gaps and opportunities.

The report is available, at no charge, to all our news subscribers. Additional services are available to clients.

To read the report, which describes the details of ESG PlusTM measures used in executive incentives and the five specific actions boards can take to position their companies for success in their quest for stakeholder value, see HERE.

© Guerdon Associates 2024
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