Which element of executive pay is most likely to include some metric based on ESG performance?

The element of executive pay most likely to incorporate metrics based on ESG performance is the annual bonus. Companies increasingly integrate ESG criteria into their compensation structures as they aim to align management incentives with sustainable and responsible business practices. By linking a portion of the annual bonus to ESG performance, organizations can encourage executives to prioritize long-term sustainability goals alongside financial metrics.

ESG factors can include metrics related to environmental impact, social responsibility, and governance practices, which are increasingly relevant in today’s business landscape. This integration reflects a broader trend among investors and stakeholders who demand accountability and transparency regarding corporate sustainability efforts.

While other elements of compensation, such as long-term incentives or share schemes, may also start to reflect ESG performance indicators, the annual bonus is typically more directly tied to performance metrics that can be assessed on a regular basis. This makes it more likely to evolve with changing ESG expectations and standards.