December 15, 2020

Agenda: Diversity Incentive Metrics — Often Vague — Proliferate

by Alana Pipe

More companies than ever have disclosed that they adopted diversity incentive metrics in executive pay this year, a practice expected to become more prevalent moving forward. However, some investors question whether goal-setting for these types of metrics is as rigorous as it needs to be in order to achieve the lofty diversity pronouncements many companies have made.

Diversity and inclusion are likely to become more prominent components of compensation as a result of the social unrest and heightened focus on racial equity in the corporate environment that has occurred this year, according to Dayna Harris, partner at Farient Advisors.

D&I metrics at S&P 500 companies came in multiple shapes and sizes last year, varying in whether the measures were weighted to the level of specificity disclosed and how much they paid out.Most diversity initiatives are an unweighted component of short-term incentive compensation. Whereas weighted metrics constitute an absolute position of overall executive compensation and have an absolute dollar value tied to them, unweighted metrics are part of a bucket of assorted nonfinancial metrics, making it unclear how much money was awarded due to progress on diversity.

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