The Markets August 24, 2020

More Employers Including ESG Investments in Executive Compensation, Retirement Programs

Surveys find plan sponsors and participants have a growing interest in environmental, social and governance issues.

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A survey by Willis Towers Watson found that while only 27% of employers currently include environmental, social and governance (ESG) investments in their executive compensation programs, that is slated to double to 54% in the next three years.

“Pressure has been mounting for companies to demonstrate a commitment to ESG,” says Heather Marshall, senior director, executive compensation, Willis Towers Watson. “Some investors are becoming increasingly vocal on environmental issues, while the pandemic and social unrest are accelerating the focus on social issues by many boards. This is driving companies to consider incentive plan metrics that link variable pay outcomes to the successful execution of ESG aspects of their business strategies.”

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Interest in ESG is starting at the corporate level, as more companies are learning that applying these principles to how a company is run can lead to higher profits over the long term, Charles Nelson, chief executive officer of retirement and employee benefits at Voya, tells PLANADVISER. “On a global basis, you see the data quite clearly spell this out,” Nelson says. “We are bit behind in the U.S.”

After considering their bottom-line profits, companies are turning to ESG in their retirement and executive compensation plans, he says. “It would be inconsistent for them to run their business one way and to treat their employees differently in their benefits program.” Nelson says 30% of Voya’s clients are offering ESG investments in their retirement plans, either as a standalone investment or as an element of a target-date fund (TDF).

“This is only a small percentage of total assets, but we think that will grow over time, particularly as a recent survey we did found that 76% of consumers think it is important to apply ESG to workplace benefits plans,” Nelson says.

Employers embracing ESG in their retirement plan that also have executive compensation plans are offering these types of investments in the latter, as well, as investment lineups in executive compensation plans often mirror retirement plans, Nelson says. “Academic research has found that investors believe ESG will create greater value over the long term, so they tend to be more patient about this kind of investing, Nelson says.

Don Delves, head of the executive pay consulting group at Willis Towers Watson, says his firm analyzed the proxy statements of S&P 500 companies a year ago to look for any measure of ESG investing in their executive pay programs. Willis Towers Watson found that 51% of these companies offered some type of ESG investment in their executive compensation programs.

Granted, Delves says, some of these are “soft” types of ESG investments, such as employee safety or customer satisfaction, but Willis Towers Watson researchers thought that the prevalence of ESG was interesting. The company is currently in the process of its 2020 analysis, which it will issue within the next few weeks, he says.

Delves says that while investors have been interested in governance issues “for decades,” environmental and social issues have been gaining traction only in the past few years. He points out that these are three very different issues. What appears to be of the greatest interest to investors, he says, is “human capital management. They are asking companies to be able to tell their human capital story, such as safe working conditions.”

Underscoring the importance of this, he continues, “about a year ago, the SEC [Securities and Exchange Commission] came out and said it would like companies to do a better job of reporting on human capital and other intangibles. We know that 70% of companies’ value is comprised of intangibles, and part of that is human capital. So, in essence, the SEC was asking companies to provide more poignant information about such things as inclusion and diversity, employee turnover, employee development and succession planning.”

Data & Research August 24, 2020

Financial Wellness Programs Can Ease COVID-19 Tensions

As the coronavirus pandemic continues to lead to an increase in financial concerns, a Retirement Advisor Council guide suggests key financial well-being strategies.

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The Retirement Advisor Council has issued a viewpoint guide to help employers choose the right financial wellness program for their situation in an effort to reduce financial concerns among workers.

As the economic downturn caused by COVID-19 shifts to a longer-term economic recession, financial worries among employees continue to grow. Roughly 67% of U.S. workers say they are personally stressed about their finances, with one-third of those admitting their personal finance matters are a distraction at work, according to a PwC Employee Financial Wellness Survey.

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Prioritizing financial wellness programs increases retention and recruitment, especially now. Many industry experts believe that following the pandemic, financial wellness will become a main priority among employers. The PwC report finds that 78% of financially stressed employees say they would be attracted to companies that care for their financial well-being.

The viewpoint guide lists effective financial wellness programs as those that help employees improve financial security; address financial concerns including college debt, credit card debt, access to cash in emergency situation and retirement savings; integrate employer-provided benefits, including retirement and health care benefits; and more.

One strategy to drive engagement from participants is to design these programs to be entertaining, the guide suggests. To gauge effectiveness, the guide breaks down key metrics into three categories: objective measures, engagement metrics and success stories.

Objective measures focus on concrete concerns such as credit scores, debt level or retirement readiness, while subjective measures emphasize emotions or opinions, such as employee attitudes. Engagement metrics specify a participant’s familiarity with the program, whether it’s first time use, repeat use or adherence over time. Success stories share statistical evidence to document the use, user adherence and effectiveness of programs, according to the guide.

To be successful at improving financial wellness, the guide recommends ensuring the program is accessible and usable to anyone regardless of literacy, wealth or earnings; delivered to employees as early as possible and using a combination of media (online, print, in-person, video conferencing, podcasts, audio content and toll-free contact centers); supported live at least 12 hours a day and six days a week; available from a trusted source; and mindful of privacy requirements, cybersecurity and data protection needs.

With no end to the pandemic in sight, experts are recommending useful strategies to ease financial worries. According to Shane Bartling, senior director, retirement, at Willis Towers Watson, more than half of employers responded to a survey stating they are creating financial well-being teams to promote existing benefits.

“Employers are very eager to address their workers’ widespread anxiety around what is happening and to find ways to demonstrate the employer’s support for the well-being of their workforce in this difficult time,” Bartling said in an interview with PLANSPONSOR. “They are not only looking to expand usage of their available benefits but also looking to enhance their benefits. One-third of the respondents are looking to implement new financial counseling resources.”

A study by Travis Credit Union found most workers are currently prioritizing short-term needs related to financial wellness, such as budgeting and saving, credit card debt and unexpected medical expenses. More employees are prioritizing paying down their credit card debt rather than student loans.

Longer-term needs, including retirement planning, have been on the back burner while employers face immediate concerns, including education on emergency savings accounts. Yet the Retirement Advisor Council guide shows workers are not prepared for what lies ahead in retirement either. The guide reports that 32% of employees are not saving for retirement due to other expenses and debt, and 49% of those saving for retirement say they will likely need to access their retirement savings for expenses prior to retiring. Additionally, 42% of those who are financially stressed expect to work in retirement for financial reasons.

More information on the Retirement Advisor Council viewpoints guide can be found here.

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