Sustainability, or environmental, social and governance (ESG) metrics are commonplace across executive incentive plans, as evidenced in WTW’s 2024 ESG Incentive Metrics Study. This is perhaps unsurprising, given many companies have incorporated sustainability into business strategy, therefore making it a key area on which to focus attention and drive performance via performance goals and incentives
Boards of directors believe a coherent sustainability strategy will contribute to sustainable organizational value and stronger financial returns, according to the results of our 2025 board stewardship research. However, the potential value of ESG metrics in incentive plans in driving company performance is contingent on these metrics being effectively designed.
With increased awareness of how sustainability factors interconnect with business strategy and resilience, boardroom (and investor) focus has shifted. To drive strategic and financial outcomes, priority is now placed on ensuring high quality metrics, including how metrics are selected and designed and how targets are set.
To better understand the role and efficacy of ESG metrics in executive incentive plans, WTW has conducted an analysis of the payouts of these types of metrics. Conducted in collaboration with Chapter Zero France, the analysis is based on 2024 disclosures (reflecting the 2023 financial year) from 871 companies across Europe and North America.
The findings of this analysis suggest that ESG metric payouts are broadly in line with those of financial metrics, suggesting a comparable level of goal-setting rigor. However, a more nuanced picture emerges when we look at different types of ESG metrics in more detail.
When looking at all ESG metrics, average payouts in short-term incentive (STI) and long-term incentive (LTI) plans for ESG metrics are broadly similar to that of financial metrics across both Europe and North America’s top-listed companies (Table 1).
| Incentive type | Region | ESG metrics | Financial metrics |
|---|---|---|---|
| STI | Europe | 112% | 116% |
| North America | 123% | 113% | |
| LTI | Europe | 104% | 103% |
| North America | 119% | 121% |
On average, ESG payouts appear to be broadly aligned with financial metrics, except for STI plans in North America, where ESG metrics overall yield notably higher payouts than financial metrics. However, when we delve deeper into the data, there are important nuances to unpack.
01
Qualitative ESG metrics tend to yield higher STI payouts compared to quantitative ESG metrics. This could raise questions about the objectivity of these qualitative measures. The importance of measurability (among other factors) for effective ESG metrics is addressed in the article “Diving into the quality of ESG and sustainability metrics in executive compensation.”
That said, qualitative measures may often be necessary to cover certain ESG areas. As for any qualitative performance metrics, investor expectation is that these metrics are designed to be as measurable as possible as well as accompanied by robust governance and disclosure, given that they generally rely more on the remuneration committee’s judgment and discretionary assessment.
However, this trend is only observable for social and governance metrics in both regions. Meanwhile, environmental metrics yield higher payouts under quantitative measurement than qualitative measurement in North America.
Overall, we observe higher STI payouts for ESG metrics in North America. This raises the question of whether companies in North America are performing better against their ESG metrics, or if this is a sign of less rigor in target setting and performance assessment compared to European countries (Figure 1).
02
LTI plans reflect a similar and connected pattern, with social and governance metrics yielding a higher payout than environmental metrics. This is likely linked to the fact that social and governance metrics tend to be qualitative measures more often than environmental metrics (Figure 2).
03
Interestingly, given the result of social and governance vs. environmental metrics noted, climate metrics generally yield higher payouts than financial metrics, with the exception of LTI plans in North America.
Several factors may explain the higher payouts for climate metrics:
In North America, LTI payouts tied to climate goals are not only lower than financial metrics, they also underperform compared to climate metrics in North American STI plans as well as European LTI and STI plans. LTI payouts for climate metrics in North America also are low compared to STI payouts of ESG metrics (123%) and social and governance metrics in LTI plans (131%) (Figure 3).
So, why are payouts for climate metrics in North American LTI plans notably lower than other metric types, and lower than these metric types used by European companies?
We’ve explored the possibility that metrics — which are more quantifiable in nature — may show lower payout trends, as targets might be more stretching and performance assessments more rigorous. This may explain the difference in findings for payouts between STI and LTI plans in North America, given that LTIs generally have more robust and transparent targets than STIs. It also is possible that climate-related targets over a longer performance period, as is the case with LTIs vs. STIs, are more difficult to set due to the volatile and non-linear nature of carbon reduction strategies.
However, neither of these factors fully explain the difference in payout trends, with notably lower payouts in North American LTIs for these metrics as compared to Europe. This could raise the question of performance. It is plausible that North American companies have underperformed compared to European companies on climate metrics given the challenging and polarized sustainability landscape in North America.
Divergent and sometimes politicized views on sustainability matters and net zero may mean that North American companies and their executives are less clear about and committed to climate transition action than European companies, which have clearer policy and investment signals around which to ground their commitment.
04
Payouts for environmental metrics tend to be less volatile than financial metrics. The spread of LTI payouts for environmental metrics is narrower than for financial metrics, indicating more consistent achievement levels in both Europe and North America. This might suggest that companies are increasingly able to set appropriate and achievable environmental targets, indicating stronger line-of-sight and less exposure to market-driven fluctuations.
The spread of payout for social and governance metrics tends to be even narrower, which is likely due to the qualitative performance assessment of these metrics. The analysis shows a lower standard deviation from target payout for these types of metrics (Figure 4).
At first glance, when looking at ESG metrics overall, it seems that there is broad consistency in how ESG targets are set for incentive metrics frameworks, with outcomes aligning with financial performance. However, important nuances emerge when we dig a little deeper, suggesting some variation in how rigorously different types of goals are set and measured.
The real power of these metrics lies in their potential to serve as a robust governance mechanism — one that can drive accountability and accelerate progress on strategically material sustainability issues and, in doing so, build long-term resilience in the business. In light of this, some large investors are promoting the inclusion of material ESG performance metrics to align executive incentives with risk management and long-term sustainable value creation.
To unlock their potential, boards committed to their stewardship duties are taking particular care to ensure the effective design of incentives and transparent reporting of ESG metrics. The variation across metric types, particularly between those that are more qualitatively versus quantitatively assessed, highlights the need for clarity, measurability and a tight alignment with material strategic objectives — as explored in WTW’s recent assessment of top global companies’ ESG metrics. Without this rigor, ESG metrics are at risk of becoming merely symbolic.
This article is the result of a joint research initiative between WTW and Chapter Zero France. We examined the payouts of ESG metrics based on latest available company disclosures in 2025.
