How Do Investors Really Feel About Non-Financial Metrics?

Materiality. Most investors take a principles-based approach to their pay guidance and expect the boards to identify for themselves which metrics are most meaningful to their business selecting only those that are material to long term value creation. 

Non-financial metrics should complement the financial ones – providing a balanced performance outlook. 

Vague Alignment: If it’s unclear how a metric supports the company’s strategy, competitive edge, or risk profile, it probably shouldn’t be there. 

Box-Checking Metrics: Compliance is necessary, but it’s not a strategy. Metrics should go beyond "staying out of trouble." 

Scorecard Soup: Too many KPIs, undefined weights, and subjective evaluations create more confusion than clarity. And, it’s not always appropriate to rely on broad ESG indices for measurement. As one investor put it bluntly, it’s like “outsourcing the measurement.” 

Overcompensation Risks: When ESG goals consistently pay out above target, investors start to wonder if the bar is too low—or if these metrics are being used to mask underwhelming financials. 

Investors tend to take a holistic approach to Say on Pay voting by examining the total compensation package and overall alignment with performance versus making a statement around the company’s ESG progress.