London – The percentage of FTSE 250 companies using ESG measures in annual bonuses has increased by 57 percent. The measures are now used in 30 percent of plans, up from 19 percent in 2020, according to new research from the Executive Compensation practice at Alvarez & Marsal (A&M).

The report also found that there has been a significant increase in the percentage of firms using ESG within Long Term Incentive Plans (LTIPs). 15 percent of performance share plans now have an ESG measure, up from just nine percent last year.

The report, which looks at the annual reports of FTSE 250 companies published up to the end of March 2021, has found that ESG measures are spreading rapidly through the index. The research into FTSE 250 ESG compensation trends follows similar research conducted by A&M into companies in the FTSE 100, which found that 47 percent of annual bonus plans now include a specific ESG category.

Whilst ESG measures are becoming more common, the median weighting for a discrete ESG component is 10 percent of the maximum opportunity in annual bonus plans and 15 percent in performance share plans. The report which also looked at broader trends, found that 32 percent of CEO annual bonus plans have not delivered a bonus, compared to 23 percent the year before.

Nicolas Stratford, Managing Director within Alvarez & Marsal’s Executive Compensation Services practice said: “ESG performance measures have been spreading fast throughout the FTSE 100, but we’re now seeing them becoming increasingly prevalent within the FTSE 250. We expect this trend to continue to accelerate as UK firms respond to increasing stakeholder demands to ensure that long-term strategic ESG goals are reflected in incentive targets, and broader expectations that they behave in a more environmentally and socially responsible way.

“While ESG measures are becoming increasingly prevalent, however, companies using ESG in a performance share plan will need to ensure that targets are seen to be robust and stretching and do not reward performance already rewarded through the annual bonus.”

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CONTACT:   

Will Thomas, Headland Consultancy, +44 (0)77 7669 2746