For companies that have incorporated ESG into strategy, including accountability for reaching ESG goals into executive compensation and incentive plans makes sense. But there are right ways and wrong ways to craft these rewards. Should incentives be based on annual goals or on long-term goals? Should goals be spread across the environmental, social, and governance, or focus on just one? Can the performance levels be determined and quantified? Should ESG metrics be reflected in the annual incentive or long-term incentive plans? Should ESG metrics be included the same way as financial measures? Does the inclusion change the structure and intention of the incentive plans?
In this brief paper, we show how to answer these questions and how to craft ESG incentives that are appropriate for each company and executive team. We also offer how to implement and adjust the plan to keep the results coming.
