In 2025, pay versus performance (PVP) stopped being “new” and started becoming diagnostic.
The third full year of SEC-mandated disclosures under Item 402(v) of Regulation S-K gave boards, investors, and advisors something they did not have in earlier years: robust pattern recognition. With multiple years of side-by-side data on compensation actually paid (CAP), shareholder returns, and company-selected performance measures, PVP disclosures began to reveal how executive pay designs behave in practice, not just how they were intended to work.
For companies and compensation committees, 2025 marked a shift. PVP is no longer primarily a compliance exercise or a narrative challenge. It has become a design, measurement, and credibility test that reaches directly into equity mix, goal-setting rigor, peer benchmarking, and how value creation is shared over time.
2025 Was the Year Misalignment Became Visible
The most consequential lesson from 2025 is how quickly multi-year PVP disclosures surface persistent misalignment.
With multiple years of CAP and performance data presented side by side, investors could move beyond one-off explanations and begin evaluating trends. Companies that appeared in an “overpay” posture – elevated CAP alongside modest or weak shareholder returns – often shared common structural characteristics.
Repeated above-target payouts under performance equity plans emerged as a frequent contributor, particularly where relative total shareholder return (TSR) or broader fundamentals were only middle-of-the-pack. While no single year of results is determinative, the accumulation of outcomes made it increasingly difficult to argue that generous payouts reflected exceptional performance.
Importantly, 2025 reduced the effectiveness of short-term narrative fixes. Boards could no longer rely on a short-term explanation to contextualize pay decisions. Patterns, especially those that persisted across multiple disclosure cycles, became harder for investors and proxy advisors to overlook.
Mark-to-Market CAP Proved More Powerful, and More Volatile Than Expected
Another learning from 2025 was that CAP’s mark-to-market mechanics are not a technical footnote. They are the lens through which alignment is judged.
CAP captures year-over-year changes in the fair value of equity awards, not just grant-date values or vesting outcomes. As a result, companies can experience pronounced swings in CAP driven by stock price movements, even when grant practices remained unchanged.
High-volatility equity programs, front-loaded grants, and large “one-time” awards can produce CAP trajectories that are difficult to reconcile with stable or lagging TSR. In several cases, designs that appeared conservative when viewed through a grant-date lens looked aggressive once mark-to-market effects accumulated over time.
2025 confirmed that the defensibility of equity programs must be evaluated under CAP mechanics, not just traditional compensation frameworks. Programs that do not withstand mark-to-market scrutiny are increasingly exposed in PVP disclosures, regardless of their original design intent.
Goal-Setting Rigor Is No Longer Subjective
Perhaps the most significant behavioral shift in 2025 was how decisively PVP data moved goal-setting rigor from philosophy to evidence.
With multiple years of realized outcomes available, investors focused less on how companies described their performance frameworks and more on what those frameworks actually produced. Patterns of repeated above-target payouts became difficult to dismiss, especially when relative TSR or peer performance did not support outsized rewards.
This dynamic forced compensation committees to confront calibration issues directly. Targets, slopes, and maximums that once felt reasonable in isolation began to look overly generous when viewed through multi-year payout patterns. For many issuers, 2025 became the year when the risk of a third consecutive “overpay” disclosure cycle triggered serious reconsideration of performance equity design.
The implication is clear: goal-setting rigor is now objectively testable. Over time, PVP disclosures reveal whether targets are meaningfully challenging or structurally permissive.
Peer-Relative Analytics Became the Default Lens
2025 also reinforced that peer-relative analysis is no longer optional.
The requirement to disclose company TSR alongside peer group TSR institutionalized relative performance evaluation in the proxy. Investors increasingly assessed outcomes based on how companies performed and paid, relative to peers, not in isolation.
At Infinite Equity, quadrant frameworks that map accumulated CAP against excess TSR versus peers proved especially useful in diagnosing alignment. These analyses clarified which companies were truly paying for outperformance and which were simply paying more.
Notably, peer-relative views also surfaced “quiet success stories”, companies delivering strong relative TSR with only moderate CAP. In several cases, these companies appeared to have room to rebalance equity mix or recalibrate leverage without undermining alignment or investor confidence.
Metrics, Narrative, and Design Must Now Align
By 2025, inconsistencies between incentive design, disclosed metrics, and PVP narrative became increasingly apparent.
The company-selected measure (CSM) and the list of “most important” performance metrics functioned as a credibility test. Where these disclosures did not clearly connect to how incentives were structured or how payouts were actually determined, skepticism followed.
Conversely, companies that treated the PVP table, narrative, and underlying plan design as an integrated story were better positioned to explain both strong and weak alignment. In practice, this meant stress-testing metrics against realized outcomes, minimizing unnecessary metric changes, and ensuring that disclosed measures reflected how value was genuinely created.
What the 2025 Data Means for 2026 Equity Design
Taken together, the lessons of 2025 point to a new, more practical set of rules for pay versus performance.
Companies that are emerging strongest under the current disclosure regime tend to:
- Design equity programs that remain defensible under mark-to-market CAP, not just at grant date.
- Embed discipline into goal-setting frameworks, with calibration that can withstand multi-year scrutiny of realized payouts versus relative performance.
- Use peer-relative analytics, quadrant positioning, and sharing-ratio concepts as ongoing diagnostics, not once-a-year disclosure checks.
- Align incentive architecture, disclosed metrics, and narrative, so that pay outcomes are explainable without contortions.
The shift underway is subtle but consequential. PVP is no longer just about explaining the past. It is increasingly a forward-looking tool, one that rewards companies that design equity compensation programs with durable alignment, measurable rigor, and a clear line of sight between executive pay and shareholder outcomes.For boards and compensation committees, 2025 clarified what works in the real world. The challenge now is to apply those lessons before multi-year disclosure patterns harden into reputational liabilities that are difficult to unwind. For more information or assistance with Pay Versus Performance, you can contact us here.
