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Momentum shift: DEI metrics’ role in executive compensation wanes

Much of corporate America responded swiftly in May 2020 when George Floyd was killed by a Minneapolis police officer, sparking widespread national outrage and a reexamination of racism in American life. In addition to speaking out about the murder, many employers launched broad strategies to increase workforce diversity through efforts to hire, promote and better train diverse employees.

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Many Fortune 500 companies—including Best Buy, Starbucks, Chipotle, Target, Johnson & Johnson and others—also boosted their focus on accountability among senior leaders by linking executive pay to DEI metrics, such as the retention rate of diverse employees and the inclusivity rate of training offered.

However, new research shows that some organizations have backed off those efforts in the year since the U.S. Supreme Court struck down affirmative action policies at colleges and universities. The ruling prompted conservative activists to file dozens of lawsuits and EEOC complaints against employers objecting to their affirmative action policies for hiring, training and promoting employees.

Now, research from Farient Advisors indicates that the percentage of U.S. companies tying a portion of executive compensation and incentives such as cash bonuses and stock awards to DEI metrics declined in fiscal year 2023-24 for the first time since Floyd’s death. Farient Advisors reviewed regulatory filings from 1,200 companies on the S&P 1500 going back to fiscal year 2020, its latest data available.

According to the filings, for instance, Uber removed DEI from the Strategic & Operational Priorities listing under its Annual Cash Bonus Plan and replaced it with a metric related to maintaining company culture. Meanwhile, 3M reexamined how it sets CEO compensation, removing a reference to increasing diversity among its management, instead citing improved investments in diverse communities and diverse suppliers, according to Farient Advisors’ research.

Brian Bueno, ESG practice leader at Farient Advisors, sat down with Human Resource Executive to discuss this shift, how some companies are now defining diversity for executive compensation purposes and what the change means for HR leaders and their organizations.

Dawn Kawamoto, Human Resource Executive
Dawn Kawamoto
Dawn Kawamoto is HR Editor of Human Resource Executive. She is an award-winning journalist who has covered technology business news for such publications as CNET and has covered the HR and careers industry for such organizations as Dice and Built In prior to joining HRE. She can be reached at [email protected] and below on social media.