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4 in 5 companies planning to change ESG measures in executive pay plans over next 3 years, Willis Towers Watson survey finds

Boards are putting stronger emphasis on environmental and inclusion and diversity priorities

December 9, 2020

ESG and Sustainability|Executive Compensation|Medioambiental

LONDON, December 9 2020 — Global events including the pandemic, economic uncertainties, and social and racial justice are sparking companies around the world to accelerate changes to their Environmental, Social and Governance (ESG) priorities, according to a new survey of boards of directors by Willis Towers Watson, a leading global advisory, broking and solutions company.

With investor and shareholder interest in ESG and sustainable investing increasing, companies are accelerating their focus on ESG initiatives.”

Shai Ganu,
Global head of executive compensation

“With investor and shareholder interest in ESG and sustainable investing increasing, companies are accelerating their focus on ESG initiatives,” said Shai Ganu, global head of executive compensation at Willis Towers Watson. “We know from our research and consulting that companies’ greatest focus is on a stronger alignment of executive compensation plans and ESG priorities, particularly with climate change and environmental measures, inclusion and diversity matters, and overall human capital governance.”

Indeed, four in five respondents (78%) are planning to change how they use ESG with their executive incentive plans. More than four in ten (41%) plan to introduce ESG measures into their long-term incentive plans over the next three years while 37% plan to introduce ESG measures to their annual incentive plans. Additionally, about a third plan to raise the prominence of Environmental and Social/Employee measures in their incentive plans.

The survey identified challenges companies face with using ESG metrics in incentive plans. Among the greatest challenges cited by respondents: target setting (52%), performance measure identification (48%) and performance measure definition (47%).

Employers are also taking various measures to review their workforce through an ESG lens. Nearly half (46%) said they have deployed listening strategies to engage with their employees, while three in ten have created a new executive role to drive ESG strategy and have identified new positions in their organisations to help achieve their ESG strategy.

Nearly half of respondents are either planning to review their culture to ensure ESG is embedded throughout their organisations or are considering doing so in the future. In addition to culture, about one in five respondents are expected to add board and/or compensation committee oversight of wellbeing and fair pay within the next three years.

Overall, while most companies are developing ESG implementation plans (84%) or have identified ESG priorities (81%), less than half (48%) have incorporated ESG plans into all aspects of their businesses – strategy, operations, and products and services offerings, indicating that companies are on different parts of their ESG journey. Over half (53%) are accelerating their ESG priorities and timing because of moral and ethical reasons and to increase their organisations’ long-term value. Over three in four respondents (78%) believe ESG is a key contributor to stronger financial performance.

“In the UK, although some companies are revising their use of ESG measures to support their executive pay programs and overall inclusion and diversity initiatives, more work needs to be done,” said Jessica Norton, UK Executive Compensation Practice Leader, Willis Towers Watson. “We expect that the level of interest and involvement of more organisations will only rise as investors, consumers and employees increasingly press companies for a strong commitment to ESG as well as hold their CEOs more accountable.”

About the Survey

The 2020 ESG Survey of Board Members and Senior Executives was conducted during September and October 2020. The survey results are based on responses from non-executive and executive directors, and non-board member management executives at 168 organisations throughout North America, Europe, Asia, Africa and the Middle East. Respondents employ 2.2 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, optimise 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.

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