ESG Goals Still Prevalent in Executive Incentive Plans, WTW Reports

More than three-quarters of S&P 500 companies incorporated at least one environmental, social and governance metric in their executive incentive plans this year, according to an analysis of regulatory proxy filings in a new global study by WTW.

The figure was flat from last year and driven mostly by short-term executive incentive plans, according to the report. The metrics also skewed more toward the social buckets than environmental benchmarks. While the usage of ESG in incentives was flat year-over-year, it held at a much higher rate than four years ago, when the same study found just 52% of S&P 500 firms included an ESG metric.

According to WTW, 74% of companies tied a social metric to executive incentives, including succession and talent management, employee engagement and culture. Governance factors were the second-most prevalent, connected to incentives at 45% of respondents, including goals focused on stakeholder relationships, community outreach and risk management. Finally, environmental factors were tied to executive incentives at 44% of companies, covering areas such as carbon emissions, energy use and environmental sustainability.  

The goals were commonly used as a short-term incentive for executives at 75% of companies that cited at least one ESG metric in STI plans. In contrast, only 9% tied such goals to long-term incentives.

DEI Metrics

In this year’s report, WTW also homed in on diversity, equity and inclusion metrics, due in part to a 2023 U.S. Supreme Court ruling that race-conscious college admission policies violated the 14th Amendment’s equal protection clause. That ruling has led to a series of lawsuits challenging formal DEI considerations in the workplace.

Despite that backdrop, WTW found only a slight decline in DEI metrics tied to executive incentive plans in 2024 among U.S. companies. Of the companies studied, 54% used at least one DEI metric in their STI plans, as compared with 56% in 2023; on the flip side, 4% used at least one DEI metric in their LTI plans, as compared with 3% in 2023.

“While DEI metrics face growing opposition, companies that retain them are likely better positioned to demonstrate their relevance to business success and long-term value creation,” says Kenneth Kuk, a senior director of work and rewards at WTW.

Diverse workforce metrics are the most common DEI measure, used by 21% of companies. Notably, 39% of these metrics are quantified, according to the report.

Global View

WTW’s study also looked outside the U.S. at 311 companies across eight major indices in Europe and 193 companies across seven major markets in the Asia Pacific region.

Europe had the highest percentage of companies incorporating ESG metrics into incentive plans at 94%. North America—including Canada—came in second at 77%, with Asia Pacific third at 74%.

The ESG metrics globally, as in the U.S., were relatively flat year-over-year, according to WTW. But LTI plans were much more likely to be connected to an ESG metric in Europe (64%) and Asia Pacific (30%) than in North America (10%).

WTW’s team reviewed public disclosures from 500 S&P 500 companies, the TSX 60 in Canada, eight major European indices and the largest companies across seven markets in Asia Pacific.