April 20, 2022Client Alert

ESG Commitments Reach Beyond the Boardroom – Potentially Impacting All Employee Incentive Pay

On April 19, our Environmental, Social and Governance (“ESG”) team published an alert discussing the proposed rule amendment released by the Securities and Exchange Commission (“SEC”) requiring public companies to disclose specific climate-related risks in registration statements and periodic reports.  As discussed in that alert, ESG legal issues have become a focus for many investors, the SEC, and other regulatory bodies.  On that same day, major payment processor, Mastercard, announced that it would tie all global employee bonuses, at least in part, to the company’s performance on certain identified ESG priorities: carbon neutrality, financial inclusion and gender pay parity.

This announcement comes a year after Mastercard rolled out its ESG-linked incentive strategy at the executive vice president level and above.  Mastercard reported that, for its senior executive team, the ESG goals identified as factors in last year’s bonuses were met or exceeded.  Reducing emissions and partnering with suppliers committed to decarbonization, supporting financial inclusion and reducing the gender pay gap were chosen as the ESG “priority areas” for the senior executive team, and those same priority areas will be extended across the global employee population. The company’s CEO announcement suggested that the priority areas were identified because of the substantial impact these priorities can have – as well as the close alignment with the company’s vision.  Reports suggest that this move could alter incentive payouts for employees by 10% – either in a positive or negative direction.

Mastercard’s public announcement and overall approach highlights that ESG is unlikely to be a passing consideration for many organizations.  With total rewards and compensation planning for 2023 likely to be underway in the coming months, organizations may consider if/how they will address ESG priorities in their strategy.  A thoughtful rollout will not only consider the likely public response and political climate, but it will also consider the responses and reactions from employees (with more leverage than ever in the era of the “Great Resignation” putting compensation “on the line” based on the achievement of ESG) and the ability of leadership charged with aligning operations to attain the ESG-related goals. 

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