Pearl Meyer's curiosity about if and how the increased investor focus on ESG issues is impacting executive incentive compensation plans prompted a one-question survey and 147 responses, as shown here:
Will your compensation committee review the appropriateness of environmental, social, and governance (ESG) measures for your executive incentive plans this year?
Particularly notable about the results are: (i) Just 17% of management respondents and 29% of board respondents believe their incentive plans already incorporate ESG measures or anticipate adding ESG measures going forward, and (ii) Management and board views vary significantly as to whether ESG measures are already incorporated in their incentive plans or are useful for their company currently, which could be explained by respondent demographics or real (and logical) perspective differences between managements and boards on these issues. Pearl Meyer observes that the difference in management vs. board views on the latter (i.e., current utility of ESG measures) "may demonstrate tension between management teams who have difficulty in seeing obvious and material value chain links to ESG measurement and boards who nevertheless feel they are under pressure from the investor community to at least explore the topic."
In light of the growing interest by investors in company portfolio ESG practices relative to long-term performance/shareholder returns, the firm suggests compensation committees at least consider ESG issues in their next review of the company's overall compensation philosophy, peer practices on incentive compensation design, and P4P assessments.
This post first appeared in this week's Society Alert!