July 9, 2023 | Eul Basa

Emerging Trend: The More Diverse A Company Is, The Higher The CEO's Pay

The world is changing, and changing fast. While we still have a lot of work to do in terms of ensuring equality in our workplaces, the circumstances are slowly improving for women and minorities. In fact, ever since race and gender was thrust into the spotlight last year as critical issues necessitating immediate change, a growing number of business leaders have pledged to diversify their companies with new initiatives.

One such strategy involves rewarding top executives with higher pay for meeting specific diversification goals. Starbucks, McDonald's, Nike, and several other big-name companies have already implemented variations of that compensation scheme, promising bonuses, more company shares, and yearly incentives to those in leadership roles for a job well done.

Rick Hernandez, the McDonald's chairman, says it's only the natural next step in the evolution of workplace dynamics. "It’s really a growth, a maturation of thinking about what’s really good for a company and what a company’s role is in society, how you serve your customers and at the same time serving your investors," he told Wall Street Journal.

The push to hire more women and minority employees is nothing new—people have been fighting for more inclusion in the hiring process for decades now. However, it's only recently that companies have been really honing in on fairer selection practices and equitable treatment of potential candidates. The rise in related protests, as well as pressure from both investors and customers have almost certainly contributed to the more prevalent actions being taken.

As of the spring of this year, as many as a third of S&P 500 companies had pledged to rolling out a diversity initiative in their compensation arrangements for executives, according to Farient Advisors LLC. Such is a stark contrast from last year, when the number of companies involved in such initiatives was only a mere 20.

Shellye Archambeau, a member of the board at Verizon and Nordstrom, has considered a more strict policy where executives will not be able to move up in the company beyond a certain level unless they have successfully recruited diverse employees. The suggestion came from Karyn Tawornite of Ernst & Young and it serves as a more aggressive approach to ensuring a more inclusive workplace.

“What matters is that it becomes part of the corporate dashboard: it gets measured, tracked, and discussed, and is part of the evaluation criteria,” Archambeau said.

Should all companies follow suit and start taking on diversity goal-driven compensation, it would truly give a new meaning to "equal opportunity employer."




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