Analysis by PwC also shows over a quarter of top firms now have executive remunerations linked to decarbonisation efforts
Growing numbers of top UK firms are linking salaries and bonuses for their executive staff to the achievement of environmental, social, and governance (ESG) goals, with well over half of FTSE 100 companies now tying incentive packages to non-financial performance metrics, according to PwC.
Fresh analysis by the consulting giant released this week shows that 58 per cent of FTSE 100 firms now link ESG measures to executive pay, representing an increase of almost a third compared to last year, when just 45 per cent of companies had such measures in place.
Moreover, the analysis shows that 28 per cent of the FTSE 100 now have executive incentives that are linked to performance against decarbonisation programmes and emissions goals.
Back in 2020, just under half of companies – 46 per cent – had an ESG measure featuring in annual bonus schemes, while almost a third – 32 per cent – incorporated an ESG measure into the assessment of their 2021 long-term incentive plans, PwC said.
The average weighting of ESG measures accounts for 16 per cent of total bonus payments and 20 per cent of long term incentive plans, the analysis suggests.
Published yesterday, the findings are based on the 97 director remuneration reports published by FTSE 100 firms, excluding investment trusts, which were voted on in the 2021 AGM season.
PwC UK’s reward and employment leader Phillippa O’Connor said the findings showed ESG was now becoming a standard component of executive pay schemes.
“Our research shows that 28 per cent of FTSE 100 companies have a measure linked to decarbonisation and net zero,” she said. “Executive pay and reward offer an important lever to align senior leaders with ESG challenges and is increasingly seen as a key tool to achieving change, with two thirds of investors believing that ESG performance measures and targets should be included in executive pay.”
Elsewhere, the analysis suggests executive pay at FTSE 100 companies has continued to show relative restraint in 2021 following the economic downturn driven by the Covid-19 pandemic, although there has also been a slight dip in the number of CEOs having their salaries frozen as the executive labour market experienced something of a bounce back.
This year 28 per cent of CEOs received no bonus – either as a result of not meeting targets or the bonus being cancelled or waived – compared to 14 per cent in 2020, according to PwC.
In addition, it found that the 2021 AGM season saw a reduction in companies achieving very high levels of shareholder support of 90 per cent of votes cast or more, and an increase in firms receiving relatively low levels of support from shareholders with less than 80 per cent of votes cast backing management pay plans.
“Looking forward to the 2022 AGM season, we expect to see much of the same restraint and scrutiny where pay outcomes do not appropriately reflect the broader stakeholder experience or ESG expectations,” explained O’Connor. “Shareholders have already started to share their focus areas and expectations. With more shareholder rebellions being recorded than in previous years, companies would do well to consider what actions they can take now to secure agreement, meet the expectations set and prepare for the new reporting regulations around their net zero plans.”
Whether it is driven by regulations, ethical considerations, a desire to secure an annual bonus, or all of the above, the march of climate and ESG considerations into mainstream boardrooms is obviously accelerating.