Pros and Cons of Using Non-GAAP Metrics for Executive Compensation, Including ESG Considerations

There has been considerable debate about companies that use non-GAAP metrics for executive compensation and whether these firms are manipulating metrics to boost C-suite pay. For investors who follow environmental, social and governance (ESG) investing philosophy, a significant component of the governance factor is executive compensation and the metrics used to justify that pay. These investors and analysts need to be aware of non-GAAP metrics surrounding the debate, as excessive use of non-GAAP metrics and the aggressive adjustments done to reach compensation targets can suggest these firms are self-dealing and is a sign of poor governance.