In this year’s proxy roundup, we have analyzed the use of environmental, social and governance (“ESG”) metrics in cash and equity incentive plans among the largest 100 public companies.

Incentive compensation plans, such as annual bonus and long-term equity awards, generally pay out on the basis of achievement of objective financial goals. However, incentive plans can also pay out in part or in full on the basis of nonfinancial metrics, including ESG metrics. In recent years, companies have increasingly linked ESG objectives to incentive compensation to support and advance their broader ESG strategies. Despite the growing politicization of ESG issues in the United States, the majority of the 100 largest public companies continue to include ESG goals aimed at promoting environmental stewardship, social responsibility and robust governance frameworks in their incentive compensation plans.

• A version of this article also appeared in the Harvard Law School Forum on Corporate Governance on August 5, 2024. Access that version here.

Key takeaways from our analysis of the 100 largest public companies include:

• 71% included one or more ESG metrics in incentive compensation plans. Most companies that included an ESG metric in their incentive compensation plans included more than one.
• Social goals remained the most common ESG metrics in incentive compensation plans, with 68% of companies using a social metric. The most common social metrics were related to diversity, equity and inclusion (“DEI”), with 51% of the companies in our data set using a DEI metric.
• 45% included environmental goals in their incentive compensation plans. Emissions and carbon footprint-related metrics were the most common environmental metrics, followed by energy efficiency and renewable energy metrics.
• 55% included ESG metrics only in their annual incentive plans, and another 4% included ESG metrics in both their annual and long-term incentive plans. No companies in our data set included ESG metrics only in their long-term incentive plan.
• 25% included ESG metrics as standalone weighted measures, while 22% included ESG metrics as part of a corporate or teamwide scorecard. ESG metrics are typically measured based on corporate, business unit or teamwide performance, rather than individual performance.
• 31% included quantitative goals (with 22% disclosing numerical target metrics). 15% of companies included qualitative goals, and another 23% did not disclose, or had unclear disclosure, regarding how ESG metrics were measured.