AmEx, Verizon Among Few S&P 500 Firms Tying CEO Pay to Diversity

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By Andrea Vittorio

American Express Co. and Verizon Communications Inc. are among a small group of large companies tying executives’ paychecks to diversifying their workforce.

A total of 37 public companies in the S&P 500 index used diversity as a metric in pay for their CEO or at least one other top executive in 2017, according to new data from Equilar Inc. The corporate data provider started tracking this information only in the past year. Some of the pay links to diversity go back years while others were added more recently.

Diversity metrics are often attached to executive bonuses, but what those metrics look like varies. “Part of it has to do with how you measure something like that,” said Courtney Yu, Equilar’s director of research.

Most companies tie pay to general goals for promoting diversity and inclusion, not specific targets. That can make it hard to tell how much the pay plans are incentivizing corporate progress on diversity.

One exception is Verizon. Its executive pay plan’s short-term performance measures include a target for minorities and women to represent at least 59.3 percent of its U.S.-based workforce. The target is based on their employee representation at the end of 2017, so the goal is to at least maintain that level of diversity in the company’s domestic workforce in 2018.

At American Express, a portion of executives’ annual incentive pay is also linked to employee retention and diversity targets, but the targets themselves aren’t publicly disclosed. The company reports separately on the makeup of its U.S. workforce, which is majority female and more than 40 percent minority.

Prudential Financial Inc. also ties pay to improvements in diversity. Prudential’s goal, new this year, is to increase the diversity of senior management by at least five percentage points by 2020.

“That will let our associates know they can be successful here if they see people in power that look like them,” said Lata Reddy, Prudential’s senior vice president of diversity, inclusion, and impact.

Leadership’s Look

For Prudential executives at the senior vice president level and above, performance-based shares are now tied to the diversity improvement goal. Payouts can rise or fall by up to 10 percent depending on whether or not the goal is achieved.

“We can’t get to that goal without looking up and down the talent pipeline,” Reddy told Bloomberg Law.

About half of Prudential’s employees in the U.S. are women and nearly 30 percent of them are people of color, according to its most recently reported data. But both groups are less represented in management than in other roles.

That’s also true at Alphabet Inc.'s Google and other companies in the technology sector that are trying to bring more diversity to their ranks. Google’s efforts to be more diverse go beyond hiring. Its leaders say they are also focusing on promotions, retention, and culture, with different milestones in place for each aspect and different timelines by product area.

Google employees recently made the unusual move of joining Zevin Asset Management and other investors in support of a proposal to link their bosses’ pay to diversity.

“Most tech workforces are still overwhelmingly white and male,” said Pat Tomaino, who leads Zevin’s corporate engagement efforts. The socially active investment firm submitted the pay link proposal at Google and a few other tech companies this year.

The proposal was voted down at Google’s annual meeting, but Tomaino said the world’s biggest search engine is starting to signal a shift.

Executive Buy-In

Google is moving from a primarily human resources and “grassroots-led” approach to diversity and inclusion to one where senior leaders play a bigger role, according to the company’s latest annual report on diversity.

In the grassroots model, employees, known as Googlers, “developed groups for themselves,” Tomaino said. One group called Gayglers aims to help attract, recruit, and retain LGBTQ+ employees. Another one known as Greyglers represents 2,000 older employees and advocates on issues such as employee retirement benefits and product accessibility.

“But it’s a huge challenge that needs senior executive buy-in,” Tomaino said. That’s why Zevin is sending Google the shareholder proposal to link pay to diversity again for next year.

Google didn’t comment on whether it would consider adding such a link.

Zevin is also resubmitting a similar proposal at Amazon.com Inc. and a few other companies, he said.

Whether those shareholder proposals will see more traction “remains to be seen,” said Lauren Peek, a principal at Compensation Advisory Partners. The consulting firm specializes in executive and director compensation.

“Companies are still going to tie a lot of the bonus payout to financial performance because that’s linking executives to what matters most,” Peek told Bloomberg Law. “Things like diversity and inclusion are more like sweeteners, if you will.”

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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