Google Investors and Employees Propose Tying Executive Compensation to Diversity Goals

Google Investors and Employees Propose Tying Executive Compensation to Diversity Goals

A group of Google employees has teamed up with activist investors in the tech giant’s parent company, Alphabet, to push a proposal at a June 6 shareholder meeting that would make executive compensation at Google contingent on the company meeting certain diversity goals, Kate Conger reported at Gizmodo last week. Alphabet opposes the resolution and has recommended a vote against it:

Google and Alphabet have maintained that they aren’t experiencing a diversity crisis but are rather dealing with complaints from a few disgruntled employees. A Google spokesperson declined to comment on the shareholder proposals, but the company also argued in its proxy statement that the proposal wouldn’t have any meaningful impact, even if it were approved, because Alphabet CEO Larry Page receives a base salary of only $1 per year and is not compensated based on performance.

But Zevin Asset Management, the investment firm that drafted the proposal, says that it’s intended to apply to all of the company’s executives, not just Page. “Anyone whose compensation is reviewed in the proxy, people like Sundar [Pichai, Google’s CEO], we are thinking about them, too,” said Pat Miguel Tomaino, the director of socially responsible investing at Zevin. “If this proposal gets a high vote and the board moves to implement it, we expect they would implement it for the people for whom it’s relevant.” In focusing its response solely on Page’s compensation, Alphabet is avoiding the bigger issues at stake, Tomaino added.

Although Google maintains that it is a leader in diversity and inclusion among Silicon Valley tech companies, it has faced scrutiny in the past year over its slow progress toward diversity goals and allegations of discriminating against women in pay and promotions. A pay equity audit demanded by another activist investor, Arjuna Capital, failed to satisfy Arjuna’s questions and compel it to withdraw a resolution demanding that the company report on the risks it faces from emerging public policies on gender pay equity.

Investor activism has become a fact of life for large public companies, with a community of powerful and vocal investment funds using their clout to put pressure on a variety of social, environmental, and diversity issues. They are also increasingly demanding more and more frequent input into the compensation of top-level executives at the companies in which they own shares. Executive compensation is one lever these investors are using to compel corporate leaders to take certain actions—an activist investor at Verizon wants to tie it to cybersecurity goals, for example. Board membership is another such lever: State Street Global Advisors, the world’s third-largest investment management firm, announced last year that it would vote against board members charged with nominating new directors at its portfolio companies if they didn’t make progress at adding women to their boards.

So far, efforts to compel action on diversity through shareholder resolutions have not seen much success in the upper echelons of corporate America: In 2016, high-profile attempts by investors to accelerate diversity recruiting at Apple and force Burger King to add women to its board through shareholder resolutions failed. Investors are still reluctant to back such drastic measures, especially when the company’s management insists they would hurt growth. The proposed shareholder resolution at Alphabet is also unlikely to pass, but whether or not the resolution passes is sort of beside the point: Simply issuing the proposal in the first place calls the attention of other investors (and the public) to the problem the activist shareholder is trying to address, putting additional pressure on Google to focus on its diversity and inclusion issues or risk more investor ire and negative press.