Executive compensation is an important subject within the broader topic of corporate governance— and one that can quickly become contentious when it comes time for a say-on-pay vote. While the basic principle that executive pay should align with the shareholder experience hasn’t changed, the perception of how companies should measure this alignment has been evolving.

In recent years, Glass Lewis has observed companies increasingly adopting nonfinancial metrics, particularly those relevant to environmental and social (“E&S”) factors, in short- and long-term executive incentive plans. Broadly, this trend has been reflective of a rising focus on sustainability among diverse stakeholder groups, including prominent shareholders. Integrating E&S goals into compensation plans isn’t the only way of demonstrating or incentivizing corporate responsibility, but it does provide a clear line of sight from executive to shareholder.

Overall, companies are thinking of more creative ways to drive shareholder value and support corporate initiatives. While there’s an increasingly widespread market push toward incorporating E&S goals in compensation plans, there’s no consensus on just what should be measured—or how to measure it. For companies in resource-intensive sectors like energy, utilities and materials, the nature of their operations makes broad categories like safety and environmental-accident reduction particularly pertinent (indeed, these make up a major proportion of existing sustainability metrics). For consumer-facing sectors, like consumer discretionary and financial services, the impact of sustainability factors may be less directly obvious. However, these companies still face exposure to material E&S risks, such as those related to human capital management, their environmental impact or the social impacts of their products.

Glass Lewis’ special report on E&S Metrics in Executive Compensation relates what we heard in conversation with S&P 500 companies in the consumer discretionary and financials sector during our annual engagement programme. The report includes important background on the topic and shares key insights to the questions of what E&S goals are most appropriate for driving long-term company value, and how should they be structured.

E&S Metrics in Executive Compensation is available now. Glass Lewis customers can access the report on Viewpoint view the Help & Resources menu, or Governance Hub, or contact their Glass Lewis Representative for more information.

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