By Danielle Kaye
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.
RISE IN AI-RELATED GOALS
About 12% of companies in the S&P 500 index disclosed AI-related goals in their executive incentive plans this year, up from 5% of companies in 2024, according to data from the Conference Board and ESGUAGE shared with Reuters.
In its fiscal year 2026, which ran through this March, Ralph Lauren's short-term incentive plan was for the first time "tied to critical business priorities that focus our executives on AI literacy and enablement," the company said in a proxy statement filed with the US Securities and Exchange Commission in June.
The premium apparel company has reported strong growth in recent quarters as young shoppers in Asia and North America flock to its high-end collections. It said in the June filing that it saw "strong performance of our AI metrics" in fiscal 2026, which contributed to maximum payouts for top executives.
Retailers from apparel brands to grocery chains are increasingly using AI tools for inventory and pricing decisions, while also creating consumer-facing AI shopping assistants. The focus on AI is changing C-suite charts: Ralph Lauren added AI to its chief digital officer's title last year, and big-box chain Target appointed its first-ever chief AI officer in August.
EARLY STAGES
Firms in the consumer sector — which have reported sharp declines in diversity and emission-reduction metrics over the past two years — still lag in incorporating AI metrics into bonus plans, compared to sectors such as communications and finance, the Conference Board data shows.
That makes Ralph Lauren's decision "notable" among its peers in the retail and consumer goods industry, said Matteo Tonello, the head of data benchmarking and analytics at the Conference Board. He cautioned, however, that it does not appear to indicate a sector-wide shift at this stage.
Only 2% of public companies across sectors have incorporated AI into executive incentive structures, according to a review by compensation advisory firm Pearl Meyer of 2,500 proxy statements filed this year.
Ralph Lauren is "probably ahead of the curve in terms of what they are doing," said Patrick Haggerty, a managing director at Pearl Meyer.
(Reporting by Danielle Kaye in New York; Editing by Christian Plumb and Nia Williams)
