Half of FTSE 100 companies link bonuses with ESG

Alvarez & Marsal report finds 47% have a specific ESG category for remuneration

Half of FTSE 100 companies now have an ESG category in their bonus plans, a report has found.

Alvarez & Marsal looked at the annual reports of FTSE 100 companies published up to the end of June 2021, and found 47% have a specific ESG category when deciding bonuses. Broadening this out to include other social and people factors, the firm found brought this percentage up to 61% of companies.

The report, FTSE 100: directors’ remuneration trends 2021, found ESG categories were also being used more frequently as long-term incentive measurements, up to 32% of companies this year from 15% last year.

Nicolas Stratford, managing director within Alvarez & Marsal’s executive compensation services practice said: “ESG metrics are not just a latest fashion, they are part of the new normal in executive remuneration. The number of FTSE 100 firms using ESG measures in incentive plans has increased significantly; we expect this trend to continue. At the current rate, ESG measures could become a feature in more than half of long-term incentive plans in the FTSE 100.

“As ESG metrics become more prevalent in both annual bonus plans and long term-incentives, remuneration committees will need to ensure the targets they set are stretching and aligned with their overall ESG strategy. Shareholders will want to ensure that ESG metrics are challenging and not just an ‘easy win’ for executives.”

Awareness

The report found Covid-19 has had an impact on remuneration. A third of FTSE 100 CEOs had their take-home pay reduced by 30% or more compared with the previous year.

Writing in ESG Clarity in March, Alberto Lopez Valenzuela, founder and CEO, alva, noted the shift underway in executive pay as a result of the pandemic.

“After the brief period of insularity we experienced during the first hit of Covid, the tail end of 2020 saw the development of a far more outward-facing stance from business. Suddenly, businesses such as Waitrose, JP Morgan, et al, were practically queuing up to elevate their environmental, ethical and social credentials,” he said. 

Attention on the practices of companies such as Boohoo has also brought executive pay conversations to the foreground recently. In May Boohoo announced it would link its bonus scheme to improvements in its supply chain, causing MP Philip Dunne to say: “While it appears that only 15% of the bonus will be tied to ESG improvements, it is encouraging that Boohoo’s remuneration committee will have the discretion to scrap the entire bonus if these much-needed changes are not implemented,” and for investors to request other companies follow suit.

Avatar

Natasha Turner

Natasha was global editor at ESG Clarity, part of Mark Allen Financial, and a financial journalist for seven years. She has been shortlisted for Story of the Year and Investment Journalist of the Year...