Wells Fargo CEO Charlie Scharf made headlines this week when he informed the bank's operating committee that their pay packages will be linked to diversity goals going forward. According to Bloomberg, year-end executive pay will now be tied in part to goals around increasing representation and inclusion of diverse employees, and the firm as a whole will aim to double the level of black leaders in senior management (currently 6%) by 2025. In addition, Scharf will add more black leaders to the operating committee and create a new diversity and inclusion position reporting directly to him.
- Determine Strategy. Certain goals, such as addressing racial pay gaps for specific roles, may be accomplished in the short-term. Increasing representation at senior levels may be a longer-term objective with more complex drivers. An effective strategy will combine short and long-term imperatives, set multi-year objectives and develop metrics that can be benchmarked (internally or externally).
- Determine Timeframe. Short-term goals lend themselves well to the annual incentive plan; a cutting-edge strategy could be to link a portion of three-year performance awards to achieving long-term goals such as increased representation. This has not been a common approach up until now, but the world is changing quickly.
- Board Communications. Many Subscribers have noted that their Compensation Committees are expanding their purview from just executive pay to areas such as pay equity, succession and culture. An integral part of this expansion has involved reporting to the Board regarding company progress on pay equity and culture metrics; diversity and inclusion metrics will be no different.
- Clear Disclosure. Investors are showing keen interest in diversity goals and company promises regarding racial inequality. Noting that the number of companies citing D&I in the CD&A has increased sevenfold since 2012, the article suggests companies craft a disclosure that "focuses on principles, then actions and progress."