Compensation committees at S&P 500 companies are increasingly tying annual bonuses to measures beyond financial performance. The inclusion of environmental, social and governance goals in short-term incentive plans has increased fourfold since 2019, according to data collected from proxy statements.

Experts say these nonfinancial metrics can serve as useful motivators as companies aim toward specific goals. However, transparency is key to prevent shareholders from feeling left in the dark.

…In 2022, 40% of the S&P 500 included at least one nonfinancial goal in their annual incentive plans. The overall number of metrics used to calculate annual bonuses has likewise increased — from 1,500 to over 2,300 — and committees are getting more creative with how they measure progress beyond revenue or earnings per share.