Tying exec pay to diversity goals isn’t so straightforward
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Video game-maker Activision Blizzard will report its quarterly earnings after the markets close today. The company is facing a lawsuit brought by the state of California, alleging sexual harassment and discrimination and an investigation by the SEC over how it handled complaints.
Last week the CEO said he’d ask the board to drastically cut his salary to $62,500 until the company shows progress meeting gender and diversity goals. It’s a pretty dramatic cut for a guy who made about $150 million last year. But, it fits into a growing trend of tying executive pay to diversity measures.
We’ve heard a lot of corporate promises about diversity, equity and inclusion, and this year companies like McDonald’s, Nike and Starbucks are tying some executive pay to fulfilling those promises.
“In the past, usually, these incentives have been almost exclusively focused on financial outcomes,” said Yo Jud Cheng, a business professor at the University of Virginia.
About a third of S&P 500 companies report using a diversity measure in compensation programs – a growing trend – but Cheng says the devil is in the details.
“You do sometimes see a more subjective system where the board can say, ‘Yes, the CEO is doing it … no, they’re not,'” rather than hitting specific data-driven targets.
Companies are sometimes reluctant to set hard and fast numeric goals, said Ken Kuk, a director of compensation practice at Willis Towers Watson.
“A lot of organizations are probably still learning what all this means to them. You’re setting out a goal, but you don’t really know the path to get there,” he said.
And he said for many CEOs, this wouldn’t affect their longer-term earnings, like stock options.
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