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It’s time to align pay with platitudes

April 8, 2021, 9:00 AM UTC

Good morning,

Ample research over the past few years has pointed to diversity significantly improving a company’s financial performance.

For example: “In the United States, there is a linear relationship between racial and ethnic diversity and better financial performance: for every 10% increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes (EBIT) rise 0.8%,” according to a 2015 McKinsey & Company study.

But along with the diversity part, there’s also the inclusion element, which is just as important. Hiring employees of diverse ethnicities, genders, and abilities must be followed by creating an environment of belonging and opportunities for advancement.

Despite the research, the needle hasn’t moved much within executive leadership ranks. There are only five Black CEOs and 40 female CEOs in the Fortune 500, for example.

My colleague Phil Wahba takes an in-depth look at this topic in his latest piece for Fortune Magazine, “Want progress on diversity? Link it to your CEO’s pay.” Phil skillfully explores why linking diversity goals with executive compensation creates accountability.

Take Nike. As Phil writes, “Even as the sports-gear maker promised to prioritize racial inclusion, some of its own workers took to social media to decry racism at the company, citing microaggressions, lesser advancement opportunities for Black employees, and instances of Black shoppers being profiled at Nike stores. Nike stressed that the company prohibited discrimination based on race, but it encouraged workers to keep speaking out, and CEO John Donahoe admitted in a memo to staff that ‘our most important priority is to get our own house in order.'”

He continues: “Nine months later, Nike made its commitment to equity more tangible—by pegging some of Donahoe’s pay to it. In March, Nike announced that part of its executives’ long-term bonuses would be contingent on hitting specific diversity goals by 2025. Donahoe’s potential penalty for missing those targets: a six- or even seven-figure chunk of his compensation.”

“As diversity becomes an even greater focus of Wall Street, employees, and the public, more corporate boards are aligning executives’ pay with their platitudes,” Phil writes, citing other examples at Apple, McDonalds, Chipotle and other boldface names.

You can read the full article here.


See you back here tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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