US companies refine their approach to ESG metrics in executive pay programs, WTW study finds

Core Insights - U.S. companies are increasingly aligning ESG metrics with business priorities in executive incentive plans, despite some backlash against DEI initiatives [1][4] Group 1: ESG Metrics in Executive Incentive Plans - 77% of S&P 500 companies reported incorporating at least one ESG metric in their executive incentive plans, unchanged from the previous year but significantly up from 52% four years ago [2] - Globally, 81% of companies included at least one ESG metric in their executive incentive plans, with 77% using ESG measures in short-term incentive (STI) plans and 29% in long-term incentive (LTI) plans [3] - Among S&P 500 companies, human capital metrics are the most popular ESG category, utilized by 72%, while 57% use DEI metrics in their executive pay plans [3] Group 2: Trends in DEI Metrics - Despite opposition to DEI initiatives, 57% of U.S. companies use DEI metrics, with 26 companies introducing them this year, although 29 companies eliminated ESG metrics and six disclosed plans to remove DEI metrics [3][4] - The prevalence of DEI measures may decrease amid pushback, but companies that retain them are likely to present a stronger business case for their importance [4] Group 3: Performance and Payouts - ESG and non-financial metrics yield about 10% higher payouts than financial metrics among S&P 500 companies, raising concerns about the rigor of goal-setting for ESG metrics [4] - The study indicates that the focus will shift towards the quality and material relevance of ESG metrics, ensuring they are objective and measurable [7] Group 4: Regional Insights - In Europe, 94% of companies use ESG metrics in executive incentive plans, with nearly two-thirds (64%) using them in LTI plans, while in Asia Pacific, 74% use ESG metrics, with only 30% in LTI plans [6]