Stemming from increasing shareholder stewardship on matters of risk, investors have expanded the scope of their evaluation of companies from pure financials to include topics like human capital management, diversity, safety — the list goes on. And for good reason: research has shown a link between good environmental and social (E&S) practices and strong financial performance.

To promote that link, boards are increasingly basing a portion of executive incentives on non-financial metrics that measure E&S performance. Of the $6.96 billion paid to S&P 500 CEOs in 2021, at minimum nearly $600 million (8.6%) was based on E&S performance, including approximately $515 million tied to short-term incentives (STIs) and approximately $83 million tied to long-term incentives (LTIs). Since E&S performance is often measured along with other unweighted considerations the true number could be much higher, and it is increasing: In recent years, the percentage of U.S. companies that included some type of E&S consideration within their executive incentives has risen steadily.

E&S metrics can take many forms, and often differ greatly from company to company and industry to industry. Depending on what area of performance is relevant, companies may seek to measure safety, environmental impact, or even company culture. Because many of these metrics are less established than traditional financial measures, how they are structured — and disclosed — is of particular interest to investors.

Glass Lewis tracks the inclusion of E&S performance measures as part of our industry-leading executive compensation analysis, and our new white paper E&S Metric Usage in S&P 500 Executive Compensation takes a deep dive into the topic, including:

  • Overviews of different types of E&S categories and metrics,
  • Data breakdowns of environmental and social incentives by sector, topic and type,
  • Hand-picked examples of typical and innovative award structure and disclosure, and
  • Analysis of current and developing usage across the market.

E&S Metric Usage in S&P 500 Executive Compensation is available to Glass Lewis clients on Viewpoint (via the Special Reports tab on the Help & Resources pop-up menu), or Governance Hub (via the Special Reports tab).