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7 in 10 companies planning to change ESG measures in executive pay plans over next 3 years, Willis Towers Watson survey finds

Boards are putting stronger emphasis on environmental and governance priorities

Executive Compensation
N/A

December 14, 2020

HONG KONG & SINGAPORE, 14 December 2020 — Global events such as the pandemic, economic uncertainties, and social and racial injustice are sparking companies around the world to maintain or accelerate changes to their environmental, social and governance (ESG) priorities, according to a new survey of boards of directors by Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company.

With institutional investor interest in ESG and sustainable investing increasing, companies are maintaining or accelerating their focus on ESG initiatives,”

Shai Ganu,
Global Head, Executive Compensation, Willis Towers Watson

“With institutional investor interest in ESG and sustainable investing increasing, companies are maintaining or accelerating their focus on ESG initiatives,” said Shai Ganu, global head, Executive Compensation, at Willis Towers Watson. “We know from our research and consulting that companies’ focus is on a stronger alignment of executive compensation plans and ESG priorities, particularly with climate change and environmental measures, inclusion and diversity matters, and overall human capital governance.”

In Asia Pacific, seven in ten respondents are planning to change how they use ESG with their executive incentive plans over the next three years. 69% plan to introduce ESG measures into their long-term incentive plans over the next three years while 61% plan to do the same with their annual incentive plans. Furthermore, close to a third plans to raise the prominence of environmental (29%), social/employee (29%) and governance (31%) measures in their incentive plans in the coming year.

The survey identified challenges companies face with using ESG metrics in incentive plans. Among the greatest challenges cited by respondents are target setting (46%), performance measure identification (37%) and performance measure definition (34%).

Employers are also taking various measures to review their workforces through an ESG lens. Nearly half (47%) said they have or will soon deploy listening strategies to better engage with their employees, more than a third have created a new executive role to drive ESG strategy and half have identified new positions in their organisations to help achieve their ESG strategy. Half of the respondents are also either planning or considering identifying new skills and knowledge to help the organisations achieve their ESG strategy in the future.

In addition, nearly half of respondents are either planning to review their culture to ensure ESG is embedded throughout their organisations or are considering doing so in the near future. Additionally, approximately one-third of respondents are planning to add oversight of broad-based total rewards and employee wellbeing to the compensation committee’s remit within the next three years.

Overall, while most companies are developing ESG implementation plans (84%) or have identified ESG priorities (82%), less than half (48%) have incorporated ESG plans into all aspects of their businesses — strategy, operations, and products and services offerings, indicating that companies are on different parts of their ESG journey. More than half (55%) are accelerating their ESG priorities and timing. Four in five (81%) respondents believe ESG is a key contributor to stronger financial performance.

“In Asia Pacific, integrating ESG metrics into incentive plans is less common and less advanced than in other parts of the world. Although companies are revising their use of ESG measures to support their executive pay programmes, it appears more work needs to be done. Some countries such as Singapore and Australia have already come a long way and can serve as models for other markets. Others like Japan are in close pursuit,” Trey Davis, Executive Compensation Leader, Asia Pacific Willis Towers Watson.

Boards have been asking for more information on ESG strategies and priorities, particularly in the areas of environmental conservation and employee wellness,”

Trey Davis,
Executive Compensation Leader, Asia Pacific, Willis Towers Watson

“Boards have been asking for more information on ESG strategies and priorities, particularly in the areas of environmental conservation and employee wellness, to understand their alignment to sustainable value creation and materiality. Their goal is to improve the sustainable performance of the organisation by identifying the right measures for their incentive plans with appropriate performance targets,” added Trey.

The 2020 ESG Survey of Board Members and Senior Executives was conducted in September and October this year with participation from non-executive and executive directors, and non-board member management executives at 168 organisations, of which 38% were from Asia Pacific and the rest from North America, Europe, Africa and the Middle East. Respondents employ 2.2 million workers.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.

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