London - 61 percent of FTSE 100 bonus plans now have some form of ESG (environmental, social and governance) component, according to new research from the Executive Compensation practice at Alvarez & Marsal. The report, which looks at the annual reports of FTSE 100 companies published up to the end of June 2021, has found that ESG measures are spreading rapidly through the blue-chip index.

The report found that around 47 percent of annual bonus plans have a specific ESG category. However, these figures actually understate the full prevalence of the trend as they omit plans with a discrete “safety” or “people” measure that is not labelled ‘ESG’ but could fall within the ‘Social’ component of ESG. When these plans are included, the prevalence of ESG measures increases to 61 percent of annual bonus plans.

The increase in prevalence of ESG measures is also evident in long term incentives. The number of firms using an ESG measure in a long-term incentive plan increased from 15 percent, last year, to 32 percent in the latest set of annual reports. 

The report, which examined a wide set of trends across FTSE 100 Executive Director remuneration, also found that the median base salary and median total target pay are higher for female CFOs than for males, and a higher percentage of female CFOs have their total target pay positioned above the benchmark level.

Among the other findings, the report also highlighted that the effects of the pandemic have been reflected in remuneration. Around one-third of FTSE 100 CEOs have seen their take-home pay reduced by 30 percent or more when compared to the prior year. This is a result of lower payments and vesting from bonus and long-term incentive plans, compounded by the effect of share price falls.

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.”

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Contact:

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

Siobhan Allen, Marketing Manager U.K. & Europe, Alvarez & Marsal, +44 (0)77 3865 6969