Compensation Issues

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Tie diversity goals to exec pay, experts suggest

Companies are facing heightened pressure to hire and promote employees from underrepresented groups. As a result, more activist investors are pushing for diversity targets to be tied to executive compensation, and some experts told The New York Times that financial incentives could increase accountability for senior leaders. 

A study from compensation consulting firm Pearl Meyer cited by the Times found that only 78 of about 3,000 companies linked meeting diversity goals to a portion of pay for chief executives. Of those who linked pay to diversity targets, 11 said how much pay was linked to the goals, and 21 provided details of their diversity goals.

Experts argue tying compensation to the fulfillment of diversity targets would incentivize executives to promote more employees from underrepresented groups. It would also provide public recordings of how well companies are following through on their diversity pledges. Charles Tribbett III, a corporate hiring and compensation consultant, supports linking pay to diversity goals. "I believe the time is now for that discussion to be turned into action," he told the Times.

Still, questions remain around whether the diversity goals may be easy to achieve and lead to little change. Deb Lifshey, a managing director at Pearl Meyer, told the Times, "Whether or not this will have a material impact on how much compensation they're making is hard to tell." This is especially true when companies don't disclose diversity goals or how much executive compensation is being tied to these goals. 

Read the full report here.

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