The ESG Initiative at the Wharton School


Executive Pay Tied to ESG Goals Grows as Investors Demand Action

(Outlet: Bloomberg Law)
Chipotle, McDonalds, Caterpillar, and other companies are increasingly tying executive pay to environmental, social, and governance goals as more investors, regulators, and activists scrutinize corporate behavior.

Executive pay is usually tied to meeting key financial metrics, such as profit margins or return on equity for shareholders. Now, companies are calculating portions of executive pay by factoring in goals such as carbon footprint reduction, employee wellness and retention, and supporting human rights.

In 2021, a quarter of U.S. companies included some form of environmental or social metric as part of their executive incentive plans, up from 16% in 2019, according to a study by proxy advisory firm Glass Lewis & Co.