The Momentum of DEI Metrics in Incentive Programs 

Below is an excerpt from ISS-Corporate’s recently released paper “The Momentum of DEI Metrics in Incentive Programs”. The full-paper is available for download from the ISS-Corporate online library. 

Environmental, Social and Governance (ESG) concerns have become some of the top issues for corporate America in recent years. However, discussions surrounding these initiatives have become highly politicized and polarized, with anti-ESG shareholder proposals on the rise, certain companies rolling back their DEI initiatives, and falling shareholder vote support for various environmental and social proposals in recent years. At the same time, some shareholders are pushing companies to take more ambitious actions.¹ The U.S. Supreme Court’s June 2023 ruling to significantly limit the use of race status in college admissions has also emboldened investors challenging Diversity, Equity, and Inclusion (DEI) initiatives at public companies.  

Many public companies have been incorporating ESG considerations including DEI into compensation programs to incentivize their executives to achieve sustainability and DEI goals as well as financial objectives. Now, some are re-evaluating their approach given the recent shifts in the political and legal landscape. Against this backdrop, ISS-Corporate examined the incentive pay data for S&P 1500 companies to determine the prevalence, usage and payout levels of DEI metrics as well as changes these metrics measure. 

KEY TAKEAWAYS 

• ESG metrics experienced a period of rapid adoption among S&P 1500 companies, with more than 50% now incorporating at least one in their incentive program compared with 29% in 2021.  41% S&P 500 companies utilize a diversity related metric in their incentive programs. That’s significantly above the mid-cap S&P 400 at 18% and the small-cap S&P 400 at 12% in 2024. 

• Diversity, equity and inclusion metrics to assess performance have lost momentum after a boost from 2021 to 2023. 

• Gender diversity metrics are more prevalent than ethnic considerations. 18% of diversity metrics in 2023 mentioned gender, while only 10% refer to ethnicity.   

• Diversity metrics are 7% more likely to be achieved and yield payout than financial metrics. 

• Disclosures pertaining to DEI metrics have become more transparent. Approximately 61% of S&P 1500 companies now provide complete disclosure of their DEI metrics. This represents a sharp increase from 34% in 2019.  

READ THE FULL PAPER ›

^{[1] Papadopopulos  K., Frank J., Parikh P. (2024, October 31). U.S. shareholder proposals: A decade in motion. ISS-Corporate. Retrieved from https://www.iss-corporate.com/library/us-shareholder-proposals-a-decade-in-motion/}

By:
Sandra Herrera Lopez, Vice President, Data Analytics, ISS-Corporate
Kevin Kee Kim, Associate, Compensation & Governance Advisory, ISS-Corporate