Many large U.S. companies decide to walk away from commitments to diversity, equity, and inclusion (DEI) efforts in 2024, while others recently ignore environmental, social, and governance (ESG) concerns Despite pressure to do so, the majority of S&P companies, 500, still incorporate ESG and DEI metrics into their executive compensation plans. Company board members approve all executive compensation plans, so the board is willing to use financial incentives to maintain the ethos of ESG and DEI initiatives over the long term without imposing quotas. It will be interesting to see if.
McDonald's recently joined the list of major companies that have decided to end their DEI initiatives. JPMorgan Chase is also the latest company to leave the Net Zero Banking Group, a United Nations-backed coalition pledging to reduce its greenhouse gas emissions to zero by 2050. Anti-ESG and anti-DEI advocates have played a major role. It serves to put pressure on many companies to make such moves.
Despite trending backlash against ESG and DEI, 77% of S&P 500 companies report incorporating at least one ESG metric into executive compensation plans in 2024, according to new research from advisory firm WTW. . (The study found that 75 percent of S&P 500 companies used ESG metrics in their short-term incentive plans and 9 percent used ESG metrics in their long-term incentive plans.) Additionally, WTW found that 57 percent of S&P 500 companies used ESG metrics in their short-term incentive plans. found that they use DEI metrics. their executive pay plans; (However, 29 companies planned to remove ESG metrics from their pay plans, and an additional six companies planned to remove DEI metrics from their pay plans.)
By offering financial incentives, companies may have found a way to give executives a way to advance DEI and ESG initiatives without imposing obligations or quotas.
Kenneth Cook, WTW's senior director of work and rewards, said in a press release, “Amid backlash against corporate DEI initiatives, the adoption rate of DEI initiatives may continue to decline. , these companies have made a strong case for DEI measures, so the rest of the measures will stand up to scrutiny.” Why DEI can help drive business performance and maintain long-term sustainable value for stakeholders. Given the broader business implications, we caution against discussing human capital and DEI only within the narrow context of ESG metrics in executive incentive plans. ”
Companies like Costco, which is struggling to maintain its DEI efforts despite threats of boycotts and lawsuits from conservative groups, is finding financial incentives to encourage decision-making executives to focus on diversity. companies may consider introducing financial incentives into their pay plans. Candidates considered limiting their company's carbon emissions to be more innovative in their recruiting efforts. As always, companies should ensure that DEI and ESG-related financial incentives are tied to business growth. Boards may also seek advice from external remuneration consultants. The board may also consider other companies' compensation plans that offer such incentives.
Of course, the use of compensation plan incentives has no impact on how companies address board diversity, but organizations that hold diversity as a core value have greater It may help build trust. With considerable economic uncertainty expected in the coming year, corporate boards may find it critical to strengthen these relationships.
