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70% of S&P 500 Companies Now Tie ESG to Pay

The proportion of large companies tying ESG metrics to pay jumped 23% this year, from 57% to 70%, according to a new Semler Brossy study. The report is part of an annual series tracking the growth of ESG metrics over the past two years within the S&P 500 and focused on HCM and climate metrics, which are most important to investors. Findings include:

  • Annual Vs Long-Term. About 11% of companies that use ESG metrics now include them in both the annual and long-term plan, while 87% use them only in annual and 2% use them only in long-term.

  • Metric Structure. Nearly a quarter (23%) of companies using ESG metrics have a discrete weighting, while 41% use a scorecard approach and 8% use a modifier. About 28% of companies include ESG metrics as part of a discretionary component such as an individual component.

  • Metric Selection. Nearly all companies that use ESG metrics use HCM – about 65% of the total S&P 500. Climate metrics are considered by about 23% of the S&P 500, up from just 14% last year.

    • Within the HCM category, Diversity and Inclusion is the most common metric with 46% of all S&P 500 companies using it – a 64% increase from last year. About 39% of companies also include another HCM metric such as talent, employee satisfaction or turnover. Center member Bristol Myers Squibb was featured in the report because of its 10% Human Capital metric, which will evolve into a 10% ESG scorecard next year.

    • Climate metrics experienced a large jump in prevalence, largely driven by carbon footprint measures (a whopping 300% increase) and emissions/chemical containment goals.

It’s important to note that despite (or perhaps because of) the drastic increase in prevalence of ESG metrics in incentive plans over the past year, investors are by no means fully on-board with this practice. Companies can expect increased scrutiny of the weighting, specificity and quantitative vs qualitative nature of goals as well as their perceived rigor – just like with financial metrics.

Published on: August 5, 2022

Authors: Ani Huang

Topics: ESG and Diversity & Inclusion, Executive Pay Plan Design

Ani Huang

President and CEO, Center On Executive Compensation

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Contact Ani Huang LinkedIn

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