THE VALUE AND CHALLENGE OF TYING EXECUTIVE COMPENSATION TO ESG
It has now become the norm for firms to incorporate ESG into their daily practices, whether in portfolio construction, company valuations or investor engagement. Some of our Member firms are taking the integration of ESG one bold step further, to tie ESG to executive pay. There are varied approaches that include both qualitative and quantitative considerations; who is involved in making the decision as to the materiality of ESG in compensation grids; and how to best ensure transparency, whether through proxy circulars, disclosure in constating documents or otherwise. Ultimately, it is clear that one size does not fit all.
A study conducted by Corporate Secretary found that 60 percent of governance professional respondents in Europe say their board ties executive compensation to ESG, compared with just 37 percent of those in North America. We are pleased that our Member, RBC, is within that group, and that they are giving insight of their practices and learnings that will undoubtedly help the rest of the industry move ahead in this regard.