Corporations Tie Diversity Targets To Pay

Big businesses are getting serious about creating diverse boardrooms.

McDonald’s recently announced plans to tie 15% of executive bonuses to meeting diversity targets. It aims to have 35% of senior management from underrepresented groups and 45% of women in senior roles worldwide by 2025.

The burger giant’s move follows similar decisions by other major corporations. In October, Starbucks announced that it would link executive pay to increasing diversity by 2025. This includes 30% Black, indigenous and people of color at the corporate level, with 40% in retail and manufacturing. Microsoft, Facebook and Johnson & Johnson have made similar announcements.

These moves are the third stage in the evolution of diversity target setting. Targets existed earlier but were not generally known outside individual corporations. “It used to be a black box. Information was not shared,” explains Sonia Kang, Canada Research Chair in Identity, Diversity and Inclusion at the University of Toronto. Approximately five years ago, companies started releasing diversity projections.  Linking pay raises to diversity targets is the latest step in that evolution.

Earlier failures are driving the link to pay. “A lot of what has been done previously to move toward diversity and inclusion targets is not working,” Kang says. Diversity targets were not treated with the same priority as sales targets, for example. Diversity targets also have implications for hiring practices. “[Corporations] are going to have to go outside of their comfort zone in order to look for a more diverse pool of applicants,” explains Kang.

In the broader corporate picture, diversity targets can be viewed as a subset of a healthy organization, suggests Paul Bates, an educator and advisor to organizations and leaders on strategy in Hamilton, Canada. 

“It is highly commendable that the organization sets a goal for diversity. However, I would argue that the most elevated of leadership imperatives is the establishment and embodiment of the ethos—the character—of the enterprise. Focusing on the assurance of diversity is a transformational initiative. It should not require a transactional construct to achieve it.”