Alphabet: Tie Executive Pay to Sustainability
Ask the Board Compensation Committee to integrate sustainability metrics, including metrics regarding diversity (gender, racial, and ethnic diversity) among senior executives, into the performance measures of the CEO under the Company’s compensation incentive plans.
Numerous studies suggest that companies that integrate environmental, social, and governance (ESG) factors into business strategy reduce reputational, legal, and regulatory risks and improve long-term performance.
A leading group of companies has integrated sustainability metrics into executive pay incentive plans, among them Unilever, Walmart, and Mead Johnson. Guidance issued by the UN Principles for Responsible Investment (2012) states that including ESG factors in executive incentive schemes can help protect long-term shareholder value.
Diversity and inclusion are key components of business sustainability and success:
McKinsey & Company research shows that companies in the top quartiles for gender and racial/ethnic diversity were more likely to have above average financial returns (“Diversity Matters,” McKinsey, 2015).
In a 2013 Catalyst report, diversity was positively associated with more customers, increased sales revenue, and greater relative profits.
A 2016 study by Intel and Dalberg estimates the technology sector could generate $300–$370 billion in additional annual revenue if tech companies reflected the racial diversity of the talent pool.
Yet technology companies have not seized this opportunity. Underrepresented people of color hold just 9 percent of technical roles in the sector (Intel/Dalberg, 2016). Women hold 36 percent of entry level tech jobs and just 19 percent of C-Suite positions (“Women in the Workplace,” McKinsey, 2016).
The tech diversity crisis creates challenges for talent acquisition and retention, product development, and customer service. These human capital risks are playing out at Alphabet:
“A Google engineer who bemoaned racial diversity has sparked anger in Silicon Valley,” Washington Post, August 2017.
“Women say they quit Google because of racial discrimination: ‘I was invisible,’” Guardian, August 2017.
“3 Female Former Employees Sue Google Over Alleged Gender Pay Discrimination,” NPR, September 2017.
Alphabet has taken steps to address diversity and said it is committed to becoming “more reflective of the world we live in.” However, our Company remains predominantly white and male, especially in technical and leadership roles. Among Google Inc’s top 31 executives in 2016, there was only one underrepresented person of color and only four women. And, as Fortune observed in 2017, Alphabet’s approach lacks focus: “…there is no overarching mandate from the C-suite, like linking compensation to diversity goals….”
Investors seek clarity regarding how Alphabet is driving improvement on diversity and how that strategy is supported by C-Suite accountability. Integrating diversity metrics into executive compensation assessments would enhance Alphabet’s approach. Peers (e.g. Microsoft, Intel, IBM) have set diversity goals and begun tying parts of executive pay to such goals.