To focus management behavior on capturing opportunities from sustainability and ensure that sustainability practices are adopted as everyday practice in decision-making, Boards need to make management explicitly accountable for the company’s environmental and social impact. By aligning executive compensation with strategic sustainability targets and tying performance pay-outs to non-financial sustainability metrics, Boards can sharpen management’s focus on sustainability issues.

SGS 2022 Executive Compensation Linked to Sustainability KPIs

Good Practice Examples


  1. Identify appropriate ESG metrics material to financial performance and aligned with long-term strategy: Metrics should be defined on issues most relevant and material to business. For example, CO2 emissions can be more material to companies in the coal industry, while health & safety for Mining and Construction, or workforce diversity in consumer goods. Best-practice examples demonstrate how the selected metrics are related to strategy and performance objectives.

  2. Link Executive Compensation to material sustainability/ESG targets: To improve corporate accountability for sustainability and focus management attention, tie executive compensation to material ESG targets. Best-in-class companies:

    • Select metrics that are forward looking, clear, available, replicable, comparable, time-bound.

    • Make sure sustainability metrics are a meaningful component of the overall remuneration framework with appropriate time horizon in line with business strategy and challenging to incentivize outperformance.

    • Set both short-term vs long-term targets: Sustainability targets require long-term planning as well as immediate action.

  3. Provide high-quality disclosure to signal commitment to sustainability: Best examples from GSLs clearly disclose rationale with metrics in line with business strategy and allow sufficient information for investors to assess performance and pay-outs against ESG goals. Benchmarking with industry peers and disclosing executive compensation as a multiple of an average employee’s salary are examples of ways companies make this information useful for investors.

  4. Integrate sustainability into the performance management systems of the entire organization: Linking executive compensation with sustainability metrics is the first step; to move the entire organization towards sustainable value creation, performance management systems must be aligned for the entire organization.

SGS 2022 Top Performers in Executive Compensation