Boards Prune ESG Pay Labels But Keep the Specifics, Reshaping the Next Incentive Cycle

A new Conference Board analysis of executive incentive plans concludes that US public companies are being more selective about nonfinancial performance measures rather than staging a broad retreat from them ^[2]. That distinction matters because the label is being cut while several of the underlying measures are not, which changes what an executive is actually paid to produce in the plans being drafted for the next cycle.

The report, by Paul Hodgson and Andrew Jones of the Governance & Sustainability Center at The Conference Board, covers the 2023, 2024 and 2025 filing years for Russell 3000 and S&P 500 companies ^[1][4]. In 2025, just over half of companies in both indexes used financial and nonfinancial metrics together in short-term incentive plans, and relying only on nonfinancial STI metrics stayed rare outside health care and the smallest companies ^[5][6].

The pruning is visible in the composition. Broad ESG-labeled metrics, environmental metrics and human capital metrics all declined in STI plans, while governance metrics, social metrics, cash flow metrics, expense metrics and the use of board discretion increased ^[7]. The definitions do the heavy lifting here: the report treats "ESG" as a general scorecard, goal or label, and counts specific environmental, social, governance and human capital measures separately ^[8]. So a falling ESG line does not mean the subject matter left the plan; in the same period, governance and social measures went up ^[7][8]. What has thinned out is the umbrella heading that invited an argument, and the environmental and workforce goals underneath it.

Two constraints keep this from being a large shift in pay outcomes. Where companies use both types, financial measures typically carry about 70% to 75% of the payout opportunity ^[9], which leaves roughly 25% to 30% for everything nonfinancial ^[10]. And the weighting picture is drawn only from companies that disclose the relative split ^[11]. Long-term incentives are further from the debate: they remain much more financially led, dominated by total shareholder return, profit, return and revenue, with nonfinancial measures used selectively ^[12]. A nonfinancial goal that never migrates from the annual bonus into the long-term plan is a one-year instruction, not a strategy.

Size changes the picture more than index membership would suggest. S&P 500 companies report materially higher use of individual nonfinancial and ESG-related STI categories than the broader Russell 3000, even though both indexes have similar shares of companies using a financial and nonfinancial mix ^[13].

The rise in board discretion sits awkwardly beside all of this, and the authors flag that discretion should be distinguished from a metric ^[14]. Discretion preserves the outcome an ESG scorecard used to produce without committing to a published target.

Watch whether the categories that grew are defined tightly enough to be graded. The report argues nonfinancial metrics are not inherently soft, and can capture safety, regulatory progress, customer outcomes, workforce stability and strategic milestones when clearly defined ^[15]. It also notes that significance depends on the business model, the definition, the time horizon, the plan type and the weight, and that a safety modifier is not the same thing as putting 30% of a bonus on human capital or customer goals ^[16]. Next proxy season, read the weights and the definitions, not the category names.