Just 5% of executive incentive plans include measures of employee wellbeing while only 3% target workforce inclusion and diversity training, according to a report from WTW.
As inclusion of ESG metrics increased, the figures were a stark difference between the most common measures which included succession and talent management (in 24% of plans), carbon emission reduction (23%) and employee engagement (22%).
The study of 900 companies listed 12 major indices in Canada, Europe, the UK and the US showed environmental, social and governance (ESG) metrics were increasingly included in incentive plans across the globe, with ESG metrics becoming more prominent particularly in Europe.
Prevalence of ESG metrics increased from 28% to 44% year-on-year among many organisations in Europe, but in the US, the use of ESG metrics in long-term incentive plans remained uncommon, having barely increased from 5% to 8%.
Across all plans studied, 77% of organisations had at least one ESG metric in their incentive plans, up from 68% in 2021.
This was 91% in Europe – up 12% on 2021, followed by 89% in the UK – up 8% on 2021, 80% in Canada – up 3% on 2021 and 69% in the US – up 9% on 2021.
However, while more than three quarters (77%) of firms had at least one ESG metric in their short term incentive plans, just 21% said the same about their long term incentive plans.
WTW executive compensation and board advisory practice in Europe leader Richard Belfield said: “Companies are beginning to focus on a stronger link between their executive compensation plans and ESG priorities, particularly with respect to climate change and environmental measures, inclusion and diversity matters, and overall human capital governance.
“And we expect this trend to continue if not accelerate in the next few years.”
Shai Ganu, global practice leader, executive compensation and board advisory at WTW, added: “Advances in climate transition such as carbon emission reduction will be a main area of development globally.
“Leading global companies are monitoring developments across different regions and adapting their programs accordingly. For example, nearly one in two companies in Europe have an ESG measure in their long-term incentive plans, which is significantly higher than other parts of the world.
“We believe that adopting ESG metrics for executive incentives is a best practice, and we continue to advocate the alignment between ESG priorities with business strategy.”
