Holistic Service And Global Expertise
Made Accessible

Holistic Service And Global Expertise Made Accessible

  1. Home
  2.  — 
  3. Business & Commercial Law
  4.  — Green efforts: Using CEO pay to incentivize sustainability

Green efforts: Using CEO pay to incentivize sustainability

On Behalf of | Aug 18, 2021 | Business & Commercial Law

Residents and business owners throughout the U.S. may want to learn more about how environmental, social and governance (ESG) metrics are being used to determine the pay of executives of corporations. Some companies, such as Chipotle, have already been using these metrics in their day-to-day operations.

According to a recent article, 10% of the restaurant chain’s annual incentive bonuses will be linked to the company’s progress in:

• Improving diversity

• Creating more advancement opportunities amid Chipotle’s lower ranks

• Serving more organic, local and regenerative-produced food in its restaurants

Apple follows

The company recently announced that it will use ESG metrics when calculating the yearly cash incentives for its company execs. Apple will increase or decrease benefits.

Proactive companies make better investments

Realizing that sustainability issues affect profits, companies that manage these risks are better investments. Linking ESG metrics to pay compensation packages is a departure from the traditional way of thinking. A focus on diversity and equity issues and climate change will now be an addition to earnings per share and revenue growth as well as other factors.

The future may find that corporate and business law considerations when beginning a new business envision greener goals in forming a successful organization.

Europe focuses on climate change

The trend has been popular in Europe, where many are focusing on climate change. Eleven percent of the top 350 European companies have tied greenhouse gas emissions to their incentive plans for executives. On the other hand, only 2% of U.S. companies have done so, according to a 2020 analysis.

Too early to tell

Will these companies with new compensation packages work better financially? It is in the early stages, and it may be too soon to know how it affects financial metrics. As the earnings gap between individuals at the top and people at the bottom lessens, due to awareness and new sustainable policies, people, as well as the environment, may reap the benefits.