Incentivizing What Matters 2.0: A Cross-Continental Review of Sustainability-Linked Executive Incentives
Sustainability and Executive Pay Under Spotlight Compensation programs traditionally were designed to encourage higher earnings, business growth, and stock price performance, and only a fraction of companies incorporated environmental or social considerations in their executive pay program. However, market expectations have evolved in recent years, reflecting the growing integration of environmental and social considerations into […]
Subodh Mishra is Global Head of Communications at Institutional Shareholder Services (ISS) Inc. This post is based on an ISS Corporate Solutions memorandum by Jun Frank, Global Head of Compensation & Governance Advisory; Stephan Stegmueller, Head of Compensation & Governance Advisory, EMEA and APAC; Yan Xu, Senior Adviser, EMEA; and Fredrik Lundin, Senior Sustainability Solutions Product Manager at ISS-Corporate. Related research from the Program on Corporate Governance includes Paying for long-term performance (discussed on the Forum here) by Lucian A. Bebchuk and Jesse M. Fried; Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay (discussed on the Forum here) by Jesse M. Fried; and The Perils and Questionable Promise of ESG-Based Compensation (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita.
Sustainability and Executive Pay Under Spotlight
Compensation programs traditionally were designed to encourage higher earnings, business growth, and stock price performance, and only a fraction of companies incorporated environmental or social considerations in their executive pay program. However, market expectations have evolved in recent years, reflecting the growing integration of environmental and social considerations into investment as well as business decisions. An overwhelming majority of investors and non-investor respondents to Institutional Shareholder Services’ 2021 Global Benchmark Policy Survey agreed that non-financial Environmental, Social, and Governance (ESG)-related metrics should be incorporated into executive compensation.
