Title: CEOs’ Compensation Tied to Sustainability, but Progress Falls Short: IBM Study
According to a new study conducted by the IBM Institute for Business Value, approximately half of CEOs and their executive teams surveyed now have their compensation linked to the organizations’ performance in relation to sustainability goals. This represents a significant increase from last year’s study, where only 15% reported such a tie. However, despite this positive development, the study also found that many companies are struggling to meet their environmental, social, and governance (ESG) goals.
The annual study, titled CEO decision-making in the age of AI: Act with intention, was released on June 27, 2023. It revealed that while 95% of respondents have set operational ESG goals, only 10% have made substantial progress towards achieving them. Furthermore, environmental sustainability has slipped down the list of top organizational priorities, now ranking fifth compared to its third place position last year. In a surprising shift, productivity or profitability has taken the top spot this year, climbing from sixth place in the previous study.
Another notable finding is that less than half of the CEOs surveyed, around 45%, expressed confidence in their ability to report on ESG strategy and initiatives accurately. This lack of confidence is attributed to the expanding definition of sustainability and the uncertainty surrounding the appropriate metrics to use.
The survey was conducted through interviews with 3,000 CEOs from over 30 countries and 24 industries. The IBM Institute for Business Value collaborated with Oxford Economics to gain insights into executive perspectives on leadership, CEO decision-making, technological advancements, and vision for a future shaped by generative artificial intelligence.
The IBM survey’s results regarding companies’ lack of confidence in sustainability reporting align with a previous study conducted by PwC and the Leadership Institute at the London Business School. This study focused on the prevalence and efficacy of linking executive pay to ESG-related goals. It revealed that a majority of the 50 largest European listed companies surveyed had adopted some form of carbon target incentive in executive pay, and most of them met their targets. However, the main areas where companies fell short were the transparency of targets, which were seldom disclosed in advance, and the quantitative link to the company’s long-term carbon reduction goals, which were often unclear.
Overall, the IBM study highlights the growing trend of linking CEOs’ compensation to sustainability goals. While this signifies progress in aligning executive incentives with responsible business practices, it also underscores the challenges companies face in meeting their ESG objectives. Moving forward, organizations must continue to address these challenges by establishing clear and transparent ESG targets and metrics, enabling accurate reporting, and fostering a corporate culture that prioritizes sustainability alongside profitability.