KPMG Ties Executive Compensation to Sustainability Goals Across Global Corporations

In today’s corporate landscape, the integration of sustainability metrics into executive compensation is becoming increasingly prominent. A recent study conducted by KPMG International sheds light on this significant trend among major companies worldwide. The report, titled “Incentivizing Long-Term Value Creation: Linking Sustainability Metrics to Board Members’ Pay“, evaluates the compensation strategies of 375 large, publicly listed firms across 15 countries.

The Rise of Sustainability-Linked Executive Pay

The findings from KPMG’s report reveal that a remarkable 78% of these companies now correlate executive pay with sustainability outcomes. This shift indicates a robust integration of Environmental, Social, and Governance (ESG) factors within corporate governance frameworks.

Key Findings from the Study

• Alignment of Sustainability Targets: An impressive 88% of firms have aligned their sustainability goals within executive remuneration structures, focusing on issues pertinent to their operations.
• Common Targets: The most prevalent sustainability targets include climate change initiatives and workforce-related objectives.

Regional Variances in Adoption

The study also outlines notable regional differences in the implementation of sustainability-linked pay structures:

• European Union: Companies in the EU are more likely to adopt these measures compared to their counterparts outside the region, showcasing a proactive stance on sustainability.
• UK and Australia: These countries rank second and third globally for implementing sustainability-linked executive pay practices.

Investors’ Expectations for Long-Term Goals

Despite the increasing popularity of short-term sustainability targets, the study highlights an emerging expectation from investors for a more balanced approach that includes long-term objectives. Achieving this balance is crucial for steering companies toward sustainable development and lasting value creation.

Expert Insights

Nadine-Lan Hönighaus, Global ESG Governance Lead at KPMG International, emphasized the importance of this trend: “In a time of economic and geopolitical uncertainty, the findings clearly indicate that linking executive compensation to sustainability performance is becoming a common practice among the world’s largest companies.”

Importance of Transparency in Sustainability Metrics

Hönighaus also stressed the need for transparency in sustainability metrics and recommended that companies embarking on this journey should incorporate relevant and material sustainability targets into their executive pay schemes. The focus should be on performance indicators that are measurable, meaningful, and essential for enhancing a company’s sustainability footprint.

For more insights on corporate sustainability and governance, check out our resources on Corporate Sustainability and Executive Compensation Strategies.