2 days ago
Under pressure, U.S. companies back off DEI pay metrics
July 9 (Reuters) - The opinions expressed here are those of the author, a columnist for Reuters. This column is part of the weekly Reuters Sustainable Finance newsletter, which you can sign up for here.
Tying U.S. executives' pay to corporate diversity metrics was all the rage for a few years. But that's no longer the case as companies respond to pressure from conservative activists and U.S. President Donald Trump's administration, a new review found.
Compensation consulting firm Farient Advisors found the share of S&P 500 companies who said they used diversity, equity and inclusion measures in their executive compensation plans fell to 22%, according to proxy statements filed this year. The figure was 52% last year and hit a peak of 57% in 2023.
Brian Bueno, Farient's Sustainability Practice Leader, said the decline reflected the pressure companies have faced from conservative activists who say the practices encourage discrimination. He expects more companies will follow as executives worry about their exposure to government pressure if they are seen as embracing diversity measures.
Many have an eye on Trump's executive orders like one encouraging the private sector to "end illegal DEI discrimination and preferences, opens new tab," Bueno said.
Among corporate executives, Bueno said, "We know of cases where they decided the (pay) measure created too much legal risk and stopped using it."
In other cases, companies may still consider diversity but measure it with different terms, he said. Leaders at those companies "found a way to modify their language to avoid it looking like a DEI measure," he said.
Even when used, diversity incentives typically account for no more than a few percentage points of the total pay of S&P 500 CEOs. Their median pay reached a record $16.8 million in 2024. The metrics gained popularity as companies looked to respond to a national conversation about race in the U.S. after the murder of George Floyd, an unarmed Black man, at the hands of police in 2020.
Cessna business jet maker Textron (TXT.N), opens new tab said in last year's proxy statement that "hiring diversity" metrics were used to set 5% of executives' annual incentive compensation. But Textron said it would shift to an ESG metric that, according to this year's proxy statement, tracked "progress related to safety, sustainability and an engaged, high-performance workforce." A Textron spokesperson declined to comment further.
One company still using diversity targets for compensation this year was Verizon. (VZ.N), opens new tab It said in an April 7 filing that, "As a large, multinational company with a broad customer and employee base, we know that our operations are strengthened when we have diverse perspectives and experiences reflected in our workforce and business partners."
But in May, Verizon said it would end the targets and other diversity efforts, as it sought a merger approval from the Federal Communications Commission. "Verizon recognizes that some DEI policies and practices could be associated with discrimination," said Verizon chief legal officer Vandana Venkatesh at the time. A Verizon representative declined further comment.
Another company changing its compensation terms is Mastercard (MA.N), opens new tab, which said that starting this year, it would no longer use a modifier tied in part to gender pay parity. The change "reflects the significant progress that has been made since 2021 in the areas of greenhouse gas emissions, financial inclusion and gender pay parity," Mastercard said in an April filing. A representative declined further comment.
Mastercard had faced a shareholder resolution calling for it to consider eliminating the pay goals, filed by the conservative activist group National Legal and Policy Center. It called Mastercard's initiative "discriminatory." Citing the change, Mastercard won regulatory permission, opens new tab to skip a vote on the item.
Luke Perlot, an associate director for the Center, praised the shift and said next year his group will press companies on whether they actually drop DEI efforts. "We think some companies are just changing the name," he said.
