Executive Pay Moderates as Companies Reassess Priorities Beyond Profit

By Debra Allen

Boston, MA – After years of steadily climbing executive compensation, a new Pearl Meyer survey indicates a distinct cooling trend. The annual study, released this week, reveals companies are adopting a more measured approach to executive pay for 2026, with projected salary increases slowing, a restraint on discretionary bonus payouts, and a notable pullback from tying compensation to Diversity, Equity & Inclusion (DE&I) and Environmental, Social & Governance (ESG) metrics.

The findings suggest a growing emphasis on financial stability amidst persistent economic uncertainty, forcing companies to re-evaluate what truly drives value – and how best to reward those at the top.

A Slowing Ascent: Salary and Incentive Trends

The survey, based on responses from nearly 250 organizations, projects average base salary increases of 3.3%-3.4% for 2026 – a slight dip from previous years. While CEOs can still expect a raise (around 3.0%), it's more modest than in recent times, with other executives projected to receive slightly higher increases of 3.4%. Notably, nearly 19% of companies anticipate salary freezes for their CEOs, a signal of cautious optimism – or perhaps, a preemptive move to weather potential storms.

“The overall sentiment is definitely one of moderation,” says an anonymous compensation consultant familiar with the survey’s data. “Companies are signaling they’re prioritizing stability over explosive growth when it comes to executive pay. They're demonstrating a commitment to sustainable, long-term pay design, rather than reacting to short-term volatility.”

Incentive payouts are also expected to remain relatively grounded. Companies largely intend to stick to target payouts, with limited willingness to exercise discretion – whether upwards or downwards. Approximately half of companies don’t expect to adjust short-term incentives, and six in ten will take the same approach for long-term incentives.

The Retreat from Non-Financial Goals

Perhaps the most striking finding of the Pearl Meyer survey is the significant decline in the use of stand-alone DE&I and ESG metrics in executive incentive plans. Just 22% of public companies and 13% of private firms now include these metrics, down considerably from previous years. Around 15% have outright eliminated these metrics or folded them into broader, less specific goals.

This shift has sparked debate among corporate governance experts. Some argue it’s a pragmatic response to investor pressure. Institutional investors, increasingly focused on short-term financial returns, have voiced concerns that tying executive pay to subjective or difficult-to-measure ESG goals can dilute accountability and hinder performance.

“Investors are sending a clear message: they want to see tangible financial results,” explains an anonymous source within a large institutional investment firm. “While ESG is important, they’re hesitant to reward executives for goals that don’t directly translate into shareholder value.”

However, others warn that this retreat from non-financial goals could have detrimental consequences for corporate social responsibility. “It’s a concerning trend,” says a corporate governance professor who requested anonymity. “It sends a message that DE&I and ESG are no longer priorities, and it could lead to a decline in corporate citizenship.”

Beyond the Numbers: A Shifting Landscape

The Pearl Meyer survey reflects a broader shift in the executive compensation landscape. While financial performance remains the primary driver of executive pay, the weighting of non-financial goals is undergoing a re-evaluation. Several factors are contributing to this trend, including:

• Economic Uncertainty: Persistent inflation, geopolitical risks, and fears of a recession are prompting companies to prioritize financial stability.
• Investor Pressure: Institutional investors are increasingly focused on short-term financial returns and are demanding greater accountability from executives.
• ESG Backlash: A growing chorus of critics is questioning the effectiveness of ESG investing and arguing that it has become overly politicized.
• Difficulty in Measurement: Tying executive pay to subjective or difficult-to-measure ESG goals can be challenging and may not accurately reflect performance.

The Path Forward: Balancing Profit and Purpose

The Pearl Meyer survey suggests that companies are walking a tightrope – attempting to balance the need for financial stability with the growing expectations for corporate social responsibility. The key to success lies in finding a way to align executive incentives with both short-term financial goals and long-term sustainable growth.

“Companies need to demonstrate a genuine commitment to ESG, but they also need to ensure that it translates into tangible value for shareholders,” says the anonymous compensation consultant. “The challenge is to find metrics that are both meaningful and measurable.”

The survey findings serve as a reminder that executive compensation is not simply a matter of numbers. It's a reflection of a company's values, priorities, and long-term vision. As the business landscape continues to evolve, companies will need to carefully consider how best to reward their leaders – and ensure that their incentives are aligned with the interests of all stakeholders.