ESG

Finance chiefs may begin to see pay linked to ESG metrics

Executives are beginning to see their compensation tied to metrics beyond financial goals
article cover

Flavio Coelho/Getty Images

· less than 3 min read

News built for finance pros

The latest news and insights corporate finance professionals need to know to keep up with their constantly evolving industry.

Over the past few years, as executive pay has come under a spotlight, ESG advocates have pushed for executive pay to be linked to wider social themes such as climate action, DE&I initiatives, and governance metrics. CFOs, like other executives, may be increasingly looking at having their compensation tied to broader goals outside of pure financial reporting.

In November 2022, a report from the Harvard Law School Forum on Corporate Governance found that “the vast majority of S&P 500 companies are now tying executive compensation to some form of ESG performance.” That’s not to say that executives are bringing down atmospheric temperatures; most of the links between performance and ESG to date have been in the “S,” or social sector—namely diversity, equity, and inclusion goals—according to the report.

Fernando Tennenbaum, Anheuser-Busch’s CFO, told CFO Brew that his compensation was linked to ESG metrics, where he is now responsible for targets that traditionally were outside of the finance chief’s domain. If reporting teams begin to move under finance teams in an organization chart, it would make sense that CFOs begin to take more responsibility for the ESG outcomes.

Linking compensation to ESG metrics is not necessarily easy; however, it takes time to develop reliable data, according to the Harvard report. Also, others point to it as being used as a box-ticking exercise to deflect scrutiny, Alison Taylor, clinical associate professor at NYU Stern School of Business, told CFO Brew over email. “Incentives are not being designed with actually improving ESG performance in mind,” Taylor said.—KT

News built for finance pros

The latest news and insights corporate finance professionals need to know to keep up with their constantly evolving industry.