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More North American companies expressing interest in ESG measures for executive pay programs

Willis Towers Watson survey finds most companies have not changed their executive incentive plans in wake of pandemic.

August 12, 2020

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ARLINGTON, VA, August 12, 2020 — North American companies’ use of environmental, social and governance (ESG) measures in executive compensation programs is set to expand over the next three years, according to a survey by Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company. The survey also found companies have mostly left their executive incentive pay plans intact, amid the pandemic.

Just over a quarter of survey respondents (27%) currently include ESG metrics in their executive incentive plans either as a separate performance measure, a modifier or both. Another 2% plan to include ESG measures in their plans next year, while an additional 27% are considering adding them over the next three years.

“Pressure has been mounting for companies to demonstrate a commitment to ESG,” said Heather Marshall, senior director, executive compensation, Willis Towers Watson. “Some investors are becoming increasingly vocal on environmental issues while the pandemic and social unrest are accelerating the focus on social issues by many boards. This is driving companies to consider incentive plan metrics that link variable pay outcomes to the successful execution of ESG aspects of their business strategies.”

The survey found that the vast majority of respondents (78%) are operating their annual executive incentive plan on a similar basis to last year. Almost half of respondents (46%) indicate that they have maintained the approved goals and will or might use discretion at year-end when assessing outcomes.

Changes to long-term incentive plans appear far less common with only one in 10 respondents (8%) having taken action, and just 21% planning or considering changes.

“Companies may be shifting business strategies during the pandemic, but they are not taking aim at how they pay their executives over the long term. Those few companies that are adjusting performance goals run the risk of inadvertently lowering the bar, which in turn could trigger some investor backlash especially given that the long-term impact of the pandemic is not yet fully known,” said Don Delves, North America practice leader, executive compensation, Willis Towers Watson.

About the survey

A total of 164 employers who participated in the Actions to Restore Stability Survey responded to questions on their executive compensation programs. The survey was conducted during the first half of July 2020. Respondents employ 2.6 million workers.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.

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