Incentive compensation has long been a board's primary tool to ensure the interests of management are aligned with the interests of its shareholders. To that end, the ongoing challenge facing compensation committees is choosing metrics that motivate management to optimize shareholder value without incentivizing behaviors that focus on short-term stock price appreciation that can threaten the company's long-term interests.
In this chapter of our 18th Annual Corporate Governance & Executive Compensation Survey, we examine the forces have led to the increased use of ESG metrics in incentive compensation plans and action items for companies looking to consider incorporating ESG metrics into their incentive compensation programs.
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