There is continued increase in the global adoption of environmental, social and governance (ESG) metrics in executive incentive plans. Executive compensation disclosure in Asia Pacific is maturing, and varies widely by market. While all European and North American companies disclose some information about metrics used in incentive plans, only 62% of the largest Asia Pacific companies in the sample did so. There is high prevalence of ESG metrics in executive incentive plans in Asia Pacific, particularly in Australia, Japan, and Singapore. In these three countries, use of ESG metrics is comparable to Europe (including the U.K.) and North America. In other parts of the region, disclosure on executive incentive design and use of ESG metrics is often inconsistent.
In Asia Pacific, 63% of companies use at least one ESG metric in their incentive plans (STI, LTI or both). While half of the companies incorporate ESG metrics into their short-term incentive (STI) plans, measurement of ESG in long-term incentive (LTI) is lower with 28%.
Figure 1. Overall prevalence of ESG metrics in the Asia Pacific region
63% of companies use at least one ESG metric in their incentive plans (STI or LTI or both); 51% of companies use at least one ESG metric in their STI plans; 28% of companies use at least one ESG metric in their LTI plans
Note: All percentages are expressed as % of all companies in the example
The prevalence reflects any kind of ESG aspects incorporated in incentive plans, from standalone KPIs to parts of bundles or modifiers.
Social metrics, which are composed of human capital aspects such as talent management, diversity, equity and inclusion (DEI) and employee health and safety, and customer service, are most frequently used (47%) in Asia Pacific. Forty-five percent of companies have applied at least one of these human capital measurements in their executive incentive plans. Twenty-eight percent used environmental metrics while 31% adapted governance metrics.
Figure 2. Prevalence of ESG metrics in executive incentive plans
Figure 3. Prevalence of at least one ESG category in executive incentive plans
Percentage of companies that use at least one:
Environment and sustainability: 28%
People and HR: 37%
Diversity, Equity and Inclusion: 17%
Employee health and safety: 17%
Customer service: 24%
Governance: 31%
There is a wide range of industries incorporating ESG incentive metrics, where the financial industry has the highest prevalence (80%), followed by the energy (75%) and utilities (75%) industries.
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