Executive Compensation: Creating a Purpose-Driven Strategy by Linking Financial Incentives to ESG Metrics and Sustainability Targets

Executive Compensation: Creating a Purpose-Driven Strategy by Linking Financial Incentives to ESG Metrics and Sustainability Targets

  • November 2020 •
  • 6 pages •
  • Report ID: 5989387 •
  • Format: PDF
This IDC Perspective examines the current state of tying executive compensation plans to ESG performance goals and purpose-driven strategic objectives. At the current time, the majority of global enterprises continue to link executive compensation incentive plants to traditional total shareholder return. However, there is increasing evidence that trends are moving toward implementing sustainable targets for executive compensation plans as part of business strategies that use ESG metrics to measure performance. IDC discusses what HR services firms' approaches are with their clients to help them gain competitive advantage, and what enterprises can do now to create business value. Ultimately, the board's mandate is to protect the company's reputation. Purpose-driven strategies aligned to ESG goals and metrics directly impact the reputation of the enterprise with employees, customers, and investors."Currently, executive compensation programs are still aligned with total shareholder return as a measure of performance. However, it is estimated that over the next few years, more than 25% of publicly traded companies will move toward a form of purpose-driven strategic objectives using ESG metrics to measure performance for long-term executive compensation incentive plans. The trend is moving toward aligning corporate strategic purpose with compensation and a more holistic view of what defines performance. Organizations that move in this direction now will gain competitive advantage and increase business value. ESG is not just about "doing good" although that is certainly a component; it is now a top business priority," says Laura Becker, research manager, ESG Business Services program.