(Bloomberg) — Starbucks Corp. shareholders approved a plan to drop a bonus tied to DEI goals for its executives and replace it with a more general workforce target while also shifting more compensation to financial performance.
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The new structure, approved at an annual meeting on March 13, nixes a specific goal from the 2023 compensation package that tied 7.5% of executives’ bonuses to an undisclosed goal related to diversity, equity and inclusion.
The new plan was approved by 92% of shareholders, the company said in a filing Friday. 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 ESG-related targets in executive compensation in October 2020.
Starbucks’s equality, social and governance goals will be part of a longer-term incentive program that makes up about 25% of bonuses that no longer mentions DEI, referring instead to “talent.” The portion of the bonus paid for hitting financial targets rose to 75%, from 70%.
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 it made the change after meetings with shareholders.
Starbucks retains inclusion and diversity goals within its overall compensation structure, a spokesperson said in a statement. US goals to achieve racial and ethic diversity of at least 30% at all corporate levels and at least 40% across manufacturing and retail roles by 2025 are also still in place, the company said.
Conservative activists have been targeting executive compensation that rewards leaders for meeting DEI goals because they contend that such incentives might encourage illegal hiring behavior to meet company diversity targets. It’s part of a broader backlash against corporate diversity programs after the US Supreme Court ruled that affirmative action in college enrollment is illegal.
Strive Asset Management, an anti-activism fund company co-founded by former Republican presidential hopeful Vivek Ramaswamy, sent a letter to Southwest Airlines Co. in August warning it to end its executive compensation incentives for environmental and social goals. The group has also met privately with about a dozen large companies on the issue, according to Justin Danhof, Strive’s head of corporate governance, declining to name the companies.
Strive plans to release a detailed report later this year, after the proxy season ends, he said in an interview, adding 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% of S&P 500 companies had DEI/ESG incentives in their compensation plan in 2023, an increase from about 67% in 2021. Those goals can include a mixture of climate and diversity goals, the study found.
Starbucks’s switch to “talent” avoids the term DEI, which has been “weaponized” by the opposition, while still making it clear the company is seeking to broaden the pool of applicants, according to 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, 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.
–With assistance from Saijel Kishan and Clara Hudson.
(Updates story with company comment in the sixth paragraph)
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