Wall Street Journal Highlights Rise of D&I Metrics in Executive Pay
June 5, 2021
The rapid emergency of new diversity and inclusion metrics in executive pay plans has not gone unnoticed by the media, with a new Wall Street Journal piece highlighting companies that tie executive compensation to specific D&I goals.
The article cites recent Farient research showing that a third of S&P 500 companies now disclose use of a diversity measure or mention diversity in explaining executive pay (this is in line with a recent Meridian study which found almost 60% of companies use some form of ESG metric, with D&I being one of the most common). Here are some of the interesting ways in which companies featured in the article have incorporated D&I into incentive plans:
American Express includes a 15% weighting in the annual plan called Colleague, which includes quantitative goals around talent retention and diversity representation.
Cardinal Health launched its “Our Path Forward” initiative in 2020 and incorporated a 10% weighting in both the annual and long-term plan based on culture goals, including diversity.
Ernst & Young has a diversity policy that requires executives to demonstrate efforts to improve D&I such as attracting diverse talent or sponsoring diverse professionals, in order to be promoted.
McDonald’s has a 15% weighting on human capital measures in the annual plan and also specified long-term goals: by 2025, it aims to ensure that 45% of senior director and above positions are held by women globally, and 35% held by racial/ethnic minorities in the US.
Nike set a goal of having 45% of global leadership positions filled by women by 2025, and 30% of US directors and above filled by racial/ethnic minorities. More detail will be forthcoming in the July proxy.
Verizon has had a long-standing practice of tying diversity to incentives and included a 10% goal in the annual incentive for 2020.
The Center closely monitors developments in company disclosures around diversity and inclusion metrics, especially tied to executive pay. Since it now seems more likely than not that we will see regulatory action on mandated diversity and other HCM disclosures, it will be critical to avoid regulations that minimize or even undermine the progress companies are making in this area.