April 12, 2021
Agenda – ESG Metrics ‘Biggest Change to Comp Plans in Decades’
Chipotle Mexican Grill is one of several companies to introduce new environmental, social and governance (ESG) goals tied to top officers’ annual incentive compensation in the lead-up to this proxy season. At Chipotle, the goals relate to food and animals, people and the environment and will account for 10% of executive bonuses starting this year.
Companies that have decided to include ESG metrics in incentive plans seem to be taking a cautious approach by not including too many details in disclosures on the goals themselves and how the compensation committee assesses performance, sources say.
“Companies might be vague because they aren’t confident in their baselines and measurement system yet, and they might be paying people with a system they aren’t confident in,” says Robin Ferracone, CEO of Farient Advisors and a director on the board of Trupanion. “If they are not confident in the measurement itself, they need to be looser in how they define the measure. There’s a lot of subjectivity in these measurements, because if you put [ESG] goals in black and white, you might leave yourself open to lawsuits and criticism.”