Businesses Integrate ESG Metrics, Avoid DEI in Incentive Plans
Companies are reestablishing their executive incentive plans to focus on human capital, finds a new global report from Willis Towers Watson (WTW).
This includes valuing components of environmental, social, and governance (ESG) investments, like sustainable and responsible business practices. According to the study, 76% of S&P 500 companies say they’ve incorporated at least one ESG metric in their executive incentive plans, a 1% drop from the previous year. Nine percent of these metrics were included in long-term incentive (LTI) plans.
On a global scale, WTW reports that 80% of companies added at least one ESG metric in their executive incentive plan—another moderate drop compared to last year. Three-quarters of global companies used ESG metrics in short-term incentive (STI) plans and 32% utilized them in LTI plans.
Human capital metrics are a top priority for all businesses, with 71% of North American companies adding a minimum of one people-related metric compared to 81% of companies in Europe. Among the common people-related metrics in executive incentive plans were employee engagement, succession planning, culture, and employee retention, WTW reports.
“The broad use of people metrics is consistent with the focus of boards as they continue to prioritize their role in the oversight and governance of people risks, investments and opportunities,” said Kenneth Kuk, senior director of Work and Rewards at WTW. “They are concentrating on developments in labor markets, skill shortages, employee retention and labor costs, all of which they view are critical to company strategy and competitive advantage amidst geopolitical shifts and technology-driven business transformation.”
Despite their focus on human capital, WTW observes a drop in U.S. companies emphasizing diversity, equity, and inclusion (DEI) metrics, likely due to recent court rulings and political and policy shifts in Congress and the White House. The findings show that 34% of S&P 500 companies pay a portion of executive incentives based on these metrics, a steep decline from 55% last year.
Further, 23, or 5%, of S&P 500 companies say they’re removing DEI metrics from executive incentive plans for the current plan year. WTW expects this trend to continue, as companies are not required to disclose upcoming changes to incentive programs.
The WTW 2025 ESG Incentive Metrics Study is based on an analysis of 1,070 public company disclosures, including all constituents of major stock exchange indices in 18 markets with fiscal years ending between May 2024 and May 2025.
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.