Financial measures continue to dominate executive incentive plans, according to research from The Conference Board, ESGAUGE, FW Cook and Ropes & Gray
Non-financial metrics now account for around 25 percent of short-term incentive pay at a typical Russell 3000 company, with financial measures making up the remaining 75 percent, according to new research.
A report titled What Companies Reward: The Changing Mix of Metrics in Executive Incentive Pay, written by The Conference Board alongside ESGAUGE, FW Cook and Ropes & Gray, also found that in the S&P 500, the split is closer to 70 percent financial and 30 percent non-financial.
Boards are not abandoning non-financial measures but are using them more selectively
A Harvard Law School article on the report, which examines 2023 through 2025 proxy filings, says boards are not abandoning non-financial measures but are using them more selectively. ESG, environmental and human capital metrics have declined, while governance, social, cash flow and expense measures have gained ground.
The findings suggest ESG is being used more selectively in executive compensation. Companies are not dropping non-financial measures altogether; they are shifting toward metrics more closely tied to business performance, operational priorities and risk.
Those findings are echoed by the AFL-CIO’s latest Executive Paywatch report, which found that S&P 500 chief executives made 312 times the median US worker in 2025, excluding Elon Musk’s Tesla pay package. The federation said Musk’s $158.3 bn award was so large it would have skewed the data on its own, while media reports noted that Tesla shareholders had approved a package potentially worth up to $1 trn if performance targets are met.
Just over half of companies in both the Russell 3000 and S&P 500 used a combination of financial and non-financial metrics in short-term incentive plans in 2025. At the same time, exclusive reliance on non-financial measures remained uncommon, with health care and the smallest public companies notable exceptions.
Company size is a major differentiator. Among companies with annual revenue below $100 mn, 62 percent relied exclusively on non-financial short-term incentive metrics in 2025, compared with 7 percent that used only financial measures. For smaller and growth-stage companies, strategic milestones, operational progress or product development may be more useful performance measures than mature financial results.
Sector differences are also noticeable. Non-financial measures account for more than one-third of performance assessment in energy and utilities, and 30 percent in healthcare. The report links this to sector-specific priorities including safety, environmental performance, regulatory exposure, clinical development and patient outcomes.
Long-term incentive (LTI) plans remain heavily focused on total shareholder return, profit, revenue, return and cash flow, with non-financial measures used much more selectively. Among companies that combine financial and non-financial metrics in their LTI plans, non-financial measures typically represent between 20 percent and 30 percent of the weighting.
For S&P 500 companies, the median split in 2025 was 80 percent financial and 20 percent non-financial, compared with 75 percent and 25 percent respectively in the Russell 3000. That reinforces the report’s finding that long-term incentives remain the part of executive pay most closely tied to financial performance and shareholder returns. For compensation committees, the findings point to a more targeted use of non-financial pay metrics. The key question is no longer simply whether to include them, but whether each metric is objective, measurable and clearly tied to the company’s strategy, risks and long-term value creation.
