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Boards are increasingly compensating CEOs on environmental, social and governance metrics.

I talk about financial incentives often – let’s look at Axios’s coverage on this recently. 

About 100 S&P 500 companies link a portion of short-term incentives for CEOs (similar to annual cash bonuses) to environmental, social and governance metrics, according to ISS Corporate Solutions. That’s up from roughly 68 in 2020.   Nearly three-fourths of those metrics are around the workforce, including diversity and inclusion.

Banker bonuses in Europe are increasingly being pegged to how firms are “contributing to a … better society,” Bloomberg reported.

Why do we care?

Executive leadership responds to the metrics they are measured on, just like any individual or organization.   Early in my career I learned to always ask what a partner or vendor was compensated on, and it remains a staple of my approach.

Is management compensated on profit?  On growth?   On net new customers?   

Now, boards are linking issues like the environment and society’s large benefits to compensation.   This is a huge step for changing the makeup of organizations – and my next question is an AND, nor an OR.   Businesses have to do more than one thing at a time.

Because AND… how are they being compensated around addressing cybersecurity.    If one couples research that Wall Street investors have gotten data breach fatigue – the impact isn’t  as long lasting, a share price drop of about 3.5% within 14 days of disclosure, better than the 2019 metric of 7.27% drop.

Meaning, breaches are now even less impactful on the other metrics such as profitability or stock price, and thus the indirect statement of “to stay profitable one must not be breached” is less true.  

Kudos to Boards for holding to account on environmental, social and governance.     Will breach prevention make the cut?    IT Providers should be asking their vendors for sure.