More companies are ditching diversity, equity, and inclusion metrics to help determine their executives’ compensation amid a conservative backlash against corporate DEI programs.
The pullback, however, doesn’t mean the popular tie-in has been abandoned. In fact, a majority of S&P 500 companies and more than 40% of Russell 3000 firms that use environmental, social, and governance metrics in executive pay still link compensation to achieving DEI goals, according to a report the Conference Board, ESGAUGE, and FW Cook released Thursday.
S&P 500 firms’ use of DEI measures in executive pay dropped from 75% in 2023 to 67% in 2024, the study found. Russell 3000 companies’ utilization of DEI benchmarks for compensation also fell during the same time period, decreasing from 49% to 41%, the report said. The study only looked at the use of DEI criteria among companies that deployed various ESG metrics in executive compensation.
The decline coincided with a decrease in individual performance assessments, in which a corporate board has significant discretion to decide an executive’s pay based on that person’s DEI achievements, the report shows. Despite that drop, the use of metrics connected to company-wide DEI accomplishments has increased, according to the study.
The pressure on companies to scale back DEI initiatives has risen substantially this year. McDonald’s Corp., JPMorgan Chase & Co.and American Express Co. are getting pressure from free enterprise advocate the National Legal and Policy Center to reconsider policies linking executive pay to diversity goals in the coming months. Ford Motor Co., Lowe’s Cos.and other companies also are backing off some DEI initiatives after campaigns by right-wing podcaster and social media influencer Robby Starbuck.
“The landscape continues to shift in terms of the mechanisms used to drive DEI goals and the behaviors intended to support those objectives,” said Dana Etra, managing director at FW Cook, an executive compensation consulting firm. “Even if prevalence in incentive plans has declined, the discussion in the board room has not.”
The changes in executive compensation are part of a broader political push against corporate use of ESG criteria to determine corporate policy. Using environmental measures in determining C-suite compensation also stalled among S&P 500 and Russell 3000 firms this year after more than doubling between 2021 and 2023, according to the study.
The overall number of S&P 500 companies with ESG criteria in their compensation plans dropped slightly this year, while the Russell 3000 saw a small bump in 2024, the report said.
More than 75% of the S&P 500 and nearly half of the Russell 3000 still incorporate at least some ESG metrics into their executives’ incentive plans, the study showed.
“Companies continue to link executive compensation to ESG performance despite the recent pushback against ESG,” the report said.
