Executive pay: balancing sustainability with profitability 

Progress on ESG goals can be encouraged by aligning compensation policies to the long-term impact that organizations have on financial, social, and environmental value creation. 

As executive compensation soars back to pre-COVID-19 levels, and the gulf in pay between chief executives and employees expands, business leaders are under increasing pressure to design financial incentives in ways that reflect companies’ broader societal responsibilities while also creating long-term value for investors and other stakeholders. 

All too often, compensation plans have tended to encourage executives to pursue short-term profit maximization, often at the expense of environmental, social and governance (ESG) considerations. That is now changing: the proportion of S&P 500 companies embedding ESG goals into their executive bonus plans rose from 57% in 2021 to 70% last year, according to consultants SemlerBrossy.    

The challenge for such businesses is the need to balance…