Starbucks drops executive pay package tied to inclusion goals amid conservative pressure

Starbucks shareholders approved a plan to drop a bonus tied to diversity, equity and inclusion (DEI) goals for its executives and replace it with a more general workforce target, while also shifting more compensation to financial performance. 

The new structure, approved at an annual meeting on Mar 13, nixes a specific goal from the 2023 compensation package that tied 7.5 per cent of executives’ bonuses to an undisclosed goal related to DEI. 

The new plan was approved by 92 per cent of shareholders, the company said in a filing on Friday (Mar 15). The vote is non-binding, but companies tend to make changes in compensation if the plans fail or get significant opposition.

The coffee chain first said it would include environmental, social and governance (ESG)-related targets in executive compensation in October 2020.

Starbucks’s equality, social and governance goals will be part of a longer-term incentive programme that makes up about 25 per cent of bonuses that no longer mentions DEI, referring instead to “talent”. The portion of the bonus paid for hitting financial targets rose to 75 per cent, from 70 per cent. 

In an earlier regulatory filing, the company said it opted to “modify the talent metric to include a broader spectrum of the workforce and provide for different representation improvement targets in connection with this change”. It said that it made the change after meetings with shareholders. 

A NEWSLETTER FOR YOU

Friday, 12.30 pm

ESG Insights

An exclusive weekly report on the latest environmental, social and governance issues.

Sign Up

Starbucks declined to elaborate.

Conservative activists have been targeting executive compensation that rewards leaders for meeting DEI goals because they contend that such incentives might encourage illegal hiring behaviour to meet company diversity targets.

It’s part of a broader backlash against corporate diversity programmes after the US Supreme Court ruled that affirmative action in college enrolment is illegal.

Strive Asset Management, an anti-activism fund company co-founded by former Republican presidential hopeful Vivek Ramaswamy, wrote a letter to Southwest Airlines in August warning it to end its executive compensation incentives for environmental and social goals.

The group also met privately with about a dozen large companies on the issue, said Justin Danhof, Strive’s head of corporate governance. He declined to name them. 

Strive plans to release a detailed report later this year, after the proxy season ends, he said in an interview.

He addded that Strive voted against compensation plans and the chair of compensation committees “at every company where there was ESG/DEI in the compensation plan”. 

The Conference Board found that about 76 per cent of S&P 500 companies had DEI/ESG incentives in their compensation plans in 2023, an increase from about 67 per cent in 2021.

Those goals can include a mixture of climate and diversity goals, the study found. 

Starbucks’ switch to “talent” avoids the term DEI, which has been “weaponised” by the opposition, while still making it clear it is seeking to broaden the pool of applicants, said Charles Tharp, a professor who teaches executive compensation at Boston University’s Questrom School of Business. 

Companies use compensation plans to highlight issues they believe are important to investors, employees, customers, and the general public, Prof Tharp said.

He added that opposition to the incentives, such as a letter last year from 13 state attorneys-general questioning the legality of certain companies’ DEI plans, will definitely spark caution going forward. 

“What I hope is we don’t go to what I would call diversity hushing, where people don’t want to talk about what they’re doing,” Tharp said.  BLOOMBERG