Which element of executive pay is most likely to include some metric based on ESG performance?

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BlackTom AI · Accepted Answer

The question asks which element of executive pay is most likely to include some metric based on ESG performance.
Option 1: 'Annual bonus' — While annual bonuses can be tied to short-term performance targets, they are traditionally linked to financial results, operating metrics, or individual performance. ESG metrics can be included, but they are more commonly embedded in longer-term plans rather than the immediate, year-to-year bonus framework, making this choice less typical for ESG linkage.
Option 2: 'Salary' — Salary is a fixed, ongoing cash compensation and is generally not tied to performance metrics at all. Since ESG performance represents outcomes the company aims to influence, tying ESG to salary would undermine the incentive structure and is not how executive pay is usually designed.
Option 3: 'Long-term incentive or share scheme' — Long-term incentives are designed to align executives’ interests with sustainable, durable value creation. These plans frequently incorporate performance metrics, including ESG-related targets (such as carbon reduction, governance quality, or social metrics), because ESG outcomes are more reliably integrated over multi-year horizons and support long-term value. This makes ESG-based metrics most characteristic of long-term incentive arrangements.
In summary, fixed pay (salary) and short-term bonuses are less typically used for ESG-linked targets, whereas long-term incentives are purpose-built for incorporating such performance measures to drive sustained value and stewardship. The alignment of ESG goals with multi-year performance frameworks makes the long-term incentive or share scheme the most plausible locus for ESG metrics.

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Which element of executive pay is most likely to include some metric based on ESG performance?

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