Data and Research December 18, 2024

ESG Goals Remain in S&P 500 Firms’ Executive Incentive Plans

77% of companies still included at least one ESG metric in 2024, WTW reports.

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More than three-quarters of S&P 500 companies incorporated at least one environmental, social and governance metric in their executive incentive plans this year, according to an analysis of regulatory proxy filings in a new global study by WTW.

The figure was flat from last year and driven mostly by short-term executive incentive plans, according to the report. The metrics also skewed more toward the social buckets than environmental benchmarks. While the usage of ESG in incentives was flat year-over-year, it held at a much higher rate than four years ago, when the same study found just 52% of S&P 500 firms included an ESG metric.

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According to WTW, 74% of companies tied a social metric to executive incentives, including succession and talent management, employee engagement and culture. Governance factors were the second-most prevalent, connected to incentives at 45% of respondents, including goals focused on stakeholder relationships, community outreach and risk management. Finally, environmental factors were tied to executive incentives at 44% of companies, covering areas such as carbon emissions, energy use and environmental sustainability.  

The goals were commonly used as a short-term incentive for executives at 75% of companies that cited at least one ESG metric in STI plans. In contrast, only 9% tied such goals to long-term incentives.

DEI Metrics

In this year’s report, WTW also focused on diversity, equity and inclusion metrics, due in part to a 2023 U.S. Supreme Court ruling that race-conscious college admission policies violated the 14th Amendment’s equal protection clause. That ruling has led to a series of lawsuits challenging formal DEI considerations in the workplace.

Despite that backdrop, WTW found only a slight decline in DEI metrics tied to executive incentive plans in 2024 among U.S. companies. Of the companies studied, 54% used at least one DEI metric in their STI plans, as compared with 56% in 2023; on the flip side, 4% used at least one DEI metric in their LTI plans, as compared with 3% in 2023.

“While DEI metrics face growing opposition, companies that retain them are likely better positioned to demonstrate their relevance to business success and long-term value creation,” says Kenneth Kuk, a senior director of work and rewards at WTW.

Diverse workforce metrics are the most common DEI measure, used by 21% of companies. Notably, 39% of these metrics are quantified, according to the report.

Global View

WTW’s study also looked outside the U.S. at 311 companies across eight major indices in Europe and 193 companies across seven major markets in the Asia Pacific region.

Europe had the highest percentage of companies incorporating ESG metrics into incentive plans at 94%. North America—including Canada—came in second at 77%, with Asia Pacific third at 74%.

The ESG metrics globally, as in the U.S., were relatively flat year-over-year, according to WTW. But LTI plans were much more likely to be connected to an ESG metric in Europe (64%) and Asia Pacific (30%) than in North America (10%).

WTW’s team reviewed public disclosures from 500 S&P 500 companies, the TSX 60 in Canada, eight major European indices and the largest companies across seven markets in Asia Pacific.

Compliance December 18, 2024

Timberland Company Targeted in Latest PRT Lawsuit

The Weyerhaeuser Co. was sued by former employees, represented by Schlichter Bogard LLP, over a pension risk transfer it conducted with Athene in 2019.

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Law firm Schlichter Bogard LLP has filed another lawsuit targeting a large employer for conducting a pension risk transfer with Athene Annuity and Life Co., arguing that the insurance provider is “risky” and has an opaque business structure.

In Maneman et al. v. Weyerhaeuser Co. et al., former employees of the Weyerhaeuser Co.—one of the world’s largest timberland companies, based in Seattle—accused the firm, as well as its annuity committee and independent fiduciary State Street Global Advisors Trust Co., of breaching its fiduciary duties under the Employee Retirement Income Security Act by not selecting the “safest annuity available” following the company’s January 2019 PRT deal with Athene.

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The lawsuit was filed on December 12 in the U.S. District Court for the Western District of Washington at Seattle.

In 2019, Weyerhaeuser entered into an agreement to transfer $1.5 billion of its pension obligations to Athene, impacting about 28,500 U.S.-based retirees and their beneficiaries. According to the lawsuit, this transfer affected more than 52% of plan participants.

As of December 31, 2018, the pension plan covered approximately 54,659 total participants and beneficiaries and held approximately $4.1 billion in assets. Athene began making pension payments to Weyerhaeuser retirees on May 1, 2019.

As with many of Schlichter’s lawsuits, the plaintiffs accused Athene of being a “highly risky private equity-controlled insurance company with a complex and opaque structure.” The lawsuit also accuses Athene of issuing annuities that generate higher expected returns and profits for Athene and its affiliates by investing in lower-quality, higher-risk assets instead of the traditional mix of quality assets to support future benefit obligations. Athene was not named as a defendant in the lawsuit.

“Because the market devalues annuities when accounting for such risk, it is likely that Weyerhaeuser saved a substantial amount of money from selecting Athene instead of an annuity from a traditional life insurer,” the lawsuit alleges. “In transferring plaintiffs’ pension benefits to Athene, [Weyerhaeuser] put the future retirement benefits owed to Weyerhaeuser retirees and their beneficiaries at substantial risk of default.”

In addition, the complaint claims Weyerhaeuser failed to prudently discharge its fiduciary duties in monitoring State Street. While the company hired State Street as an independent fiduciary to select Athene, Weyerhaeuser maintained full responsibility because it appointed fiduciaries to monitor State Street to ensure that it carried out its fiduciary obligations, the lawsuit alleges.

State Street did not immediately respond to a request for comment.

In 2024 alone, Schlichter Bogard has represented plaintiffs in filing complaints against General Electric Co., AT&T Inc., Lockheed Martin and Alcoa Corp., each claiming that the employers and their independent fiduciaries failed to pick the safest annuity provider available for the PRT deals when choosing Athene.

A spokesperson from Athene stated, “These complaints are entirely baseless attempts by class action attorneys to enrich themselves at the expense of retirees. Every pension group annuity participant whose benefits have been guaranteed by Athene has received and will receive their promised benefits in full. In each pension group annuity transaction for which Athene has been selected, there has been a robust review process carried out by a fiduciary and their independent advisers who are experts at assessing insurer safety. Athene operates from a position of outstanding financial strength and is a safe and secure provider of annuity benefits. We are properly reserved, and have excellent capitalization and strong credit ratings, with a recent rating upgrade to A+ by AM Best.”

Separately, the ERISA Industry Committee, an industry association that represents the employee benefits interests of large employers, last month filed an amicus brief supporting General Electric’s motion to dismiss the case involving its PRT with Athene. In its brief, ERIC argued that the plaintiffs did not identify an instance in which Athene has paid any annuity recipients under any plan less than they would have received under their ERISA-governed pension plan. ERIC also filed a brief supporting AT&T’s motion to dismiss a case involving a PRT with Athene.

To “remedy the fiduciary breaches” they allege in the Weyerhaeuser suit, the former employees are seeking the disgorgement of the sums involved with the “improper” transactions, the posting of security to assure receipt by plaintiffs and class members of their “full retirement benefits and the monetary value of the reduced market value of Athene’s annuities relative to the value of an ERISA-compliant annuity.”

The plaintiffs also requested a jury trial and, alternatively, an advisory jury.

A spokesperson at Weyerhaeuser said, “We can’t comment on specifics of pending litigation, but we don’t believe these cases have any merit and intend to defend vigorously.”

Weyerhaeuser’s legal representatives were not identified in the legal filing.

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