Ralph Lauren ties executive payouts to AI in sign of retail's shifting priorities

NEW YORK, Oct 15 (Reuters) - Ralph Lauren, like many companies in the retail space, had until last year tied part of its executives' compensation to a warm-and-cuddly metric known as "citizenship and sustainability."

But in a sign of the times, the fashion label has replaced the sustainability measure with one ‌linking a portion of its top leaders' annual payout to "AI metrics."

The company's previously unreported move eliminates sustainability targets — a hallmark of the so-called ESG movement, which urged companies ‌to find performance measures tied to environmental and social well-being — from its short-term incentive plan. Those targets had been in place for four years.

Instead, AI goals were added to a series of other factors, such as sales ​growth and operational costs, as a basis to adjust annual incentive payouts for executives. Buried in a 131-page disclosure, the shift signals an emerging push in the retail sector to hold corporate leaders accountable for AI adoption.

A Ralph Lauren spokesperson said the AI target reinforced "opportunities for leveraging AI to enhance our work."

The company's prior sustainability metrics, she added, contributed to meaningful progress on its goals. "Our work in this area has matured and is now operationalized throughout our business," she said.

Ralph Lauren is among the few publicly listed retailers that have explicitly incorporated AI into incentive plans, joining companies ‌beyond the retail sector including Salesforce and Textron, which also ⁠replaced its ESG metric. A handful of consumer companies, including PepsiCo, have cited advancing an "AI agenda" this year as a factor in setting annual payouts for specific executives.

Compensation advisors say more of Ralph Lauren's peers might eventually follow suit as investors seek returns on AI spending and as consumer companies ⁠turn to the technology to boost margins.

"I'd call it an emerging practice," said Cory Morrow, a partner at Korn Ferry who leads the firm's consumer and retail practice for executive pay.

"The hard part, when you're putting something like AI in a bonus plan, is quantifying what are you really measuring," he said. "It's still relatively new at this point, so companies are just getting a baseline on anything that's ​measurable."

A ​retailer's annual incentive plan is a "messaging device" to signal what's important to the company, Morrow said, adding ​that financial metrics like sales growth and profitability will continue to ‌form the bulk of most bonus plans.