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Should bonuses be linked to ESG goals? Mastercard says yes

April 27, 2022, 10:33 AM UTC

Good morning,

Beginning this year, achieving ESG goals will now factor into bonus calculations for all employees, Mastercard CEO Michael Miebach recently announced. Last year, it was only linked to the compensation of senior executives, EVPs and above. 

Mastercard “either met or exceeded our goals,” and now employees will all take the company’s “shared accountability and progress to the next level,” Miebach said in the announcement. “While our global efforts go much broader and deeper, we’re tying compensation to emissions, financial inclusion, and the gender pay gap because we have a substantial impact in these areas and because they closely align with our vision,” he wrote. “Each and every one of us shares the responsibility to uphold our ESG commitments.”

At Mastercard, annual bonuses are based on several factors which make up a corporate score, a company representative told me. Up to 10% of the total corporate score represents how the company performed against ESG goals. Individual performance is the final component of the bonus calculation. This method is how executives were measured last year and will be used for the bonus calculations for all employees this year, the representative said.

I asked Alan Johnson, whose New York City consulting firm Johnson Associates advises major companies on pay, about this new approach. “I think [Miebach] is trying to send a good cultural signal of sharing in the success of all the goals,” he says. But can the average worker really influence, say, emissions? “It may not be motivational for most employees who don’t have a lot of visibility or control over these very important things. For most people, they’re pretty far away,” he says. He thinks a better approach could be to give one more measurable goal to all employees in an area where it makes sense. For instance, finance types could have “financial inclusion” be part of their score.

Many companies have been feeling the pressure from boards and investors to reach ESG goals, he says. And most recently, the U.S. Securities and Exchange Commission released pending mandatory climate-risk disclosures that would require compliance as soon as fiscal 2023 for the largest public companies.

Mastercard is certainly not alone. The percentage of U.S. companies that included some type of environmental or social metric consideration within their executive incentives has increased from 16% in 2019 to 21% in 2020, and 25% in 2021, according to a study by proxy advisory firm Glass Lewis & Co. “Of the $6.96 billion paid to S&P 500 CEOs in 2021, at minimum nearly $600 million (8.6%) was based on [environmental and social] performance,” according to the firm’s report. 

ESG pressure on companies is “enormous,” Johnson says. How is your company measuring up?

See you tomorrow.

Sheryl Estrada

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