McDonald’s Links Executive Pay to Diversity Goals | October 2021
After hiring a new global head of diversity, equity, and inclusion, McDonald's is making executive pay dependant on reaching new goals.
After hiring a new global head of diversity, equity, and inclusion, McDonald’s introduced a new set of diversity goals. Soon after, the fast-food giant announced it would link executive pay to these diversity targets.
CEO Chris Kempczinski wrote in a letter to employees that the goals are part of holding the company and its leaders accountable. McDonald’s aims to reach gender parity in management globally by the end of 2030, increase the representation of historically underrepresented groups in the United States to 35% by 2025, and revamp its organizational culture.
McDonald’s Distances Itself From Party Culture
Not long ago, McDonald’s former CEO Steve Easterbrook was fired for having an inappropriate relationship with an employee. According to The Wall Street Journal, under the company’s former leadership, McDonald’s fostered a party culture. The company has also faced discrimination lawsuits from current and former franchisees.
Linking Diversity Targets to Executive Compensation
Moving forward, the pay of its ten executive vice presidents will depend partially on diversity targets. The company also introduced a broader diversity initiative called Allyship through Accountability. Through the initiative, McDonald’s has released employment data on representation for women and historically underrepresented groups to show it is committed to transparency.
To fully embrace diversity, McDonald’s isn’t simply focused on recruiting efforts. Rather, the company is also making functional improvements to retention, development, and succession planning.
The Big Picture
McDonald’s is not the only company linking diversity targets with executive compensation. Ovia Health, a family health benefits platform, has linked bonuses to its diversity-related measures. FirstEnergy Corp, a utility company, added diversity and inclusion goals to its short-term incentive program for everyone with the title of supervisor and above.
Nike also said it would tie part of its executive compensation to its diversity goals over five years. Starbucks will award more shares to top executives if its group of managers becomes more diverse over the next three years.
This could be the start of a greater trend. While racial and gender diversity has been a focus for many years, organizations are facing increasing pressure from investors, employees, and customers to do more. Money is a powerful motivator. Tying compensation to diversity targets can be an effective means of motivating employees at all levels to contribute to achieving goals.
In the Classroom
This article can be used to discuss the classical theory of motivation (Chapter 9: Motivating the Workforce) and diversity, equity, and inclusion (Chapter 10: Managing Human Resources).
Discussion Questions
- Why is McDonald’s linking executive pay with its diversity goals?
- Do you think more companies will link compensation to diversity goals? Why or why not?
- Why is money a powerful motivator?
This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell and Linda Ferrell.
Sources:
Danielle Wiener-Bronner, "McDonald’s Links Executive Pay to Diversity Targets," CNN, February 18, 2021, https://www.cnn.com/2021/02/18/business/mcdonalds-diversity-targets/index.html
Emily Glazer and Theo Francis, "CEO Pay Increasingly Tied to Diversity Goals," The Wall Street Journal, June 2, 2021, https://www.wsj.com/articles/ceos-pledged-to-increase-diversity-now-boards-are-holding-them-to-it-11622626380
Paolo Gaudiano, "How Ovia Health, McDonald’s and FirstEnergy Drive Diversity and Inclusion Through Compensation," Forbes, September 21, 2021, https://www.forbes.com/sites/paologaudiano/2021/09/21/how-ovia-health-mcdonalds-and-firstenergy-drive-diversity-and-inclusion-through-compensation/?sh=645fa29c371e
Linda Ferrell is the Roth Family Professor of Marketing and Business Ethics in the Raymond J. Harbert College of Business, Auburn University. She was formerly Distinguished Professor of Leadership and Business Ethics at Belmont University. She completed her Ph.D. in business administration, with a concentration in management, at the University of Memphis. She has taught at the University of Tampa, Colorado State University, University of Northern Colorado, University of Memphis, University of Wyoming, and the University of New Mexico. She has also team-taught classes at Thammasat University in Bangkok, Thailand.
