Banks back away from using DEI in determining executive pay

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Banks are retreating from the practice of tying executive compensation to diversity goals, marking yet another blow to the diversity, equity and inclusion movement in corporate America.

The pullback has been swift. A new analysis of 2024 executive pay packages at 59 large and regional banks shows that 8% included diversity-related formulas in their annual bonus programs — a sharp decline from 2022 and 2023, when 53% of the banks included in a similar survey linked some portion of their executives' yearly bonuses to meeting specific DEI goals.

When DEI metrics have been a factor in executive compensation decisions, they have tended to be used to determine no more than 20% of annual bonuses.

The decision to untie bonuses from diversity metrics comes amid the Trump administration's ongoing crackdown on DEI efforts in the workplace and beyond. An executive order signed in January called DEI "illegal." Another one in April condemned the use of "disparate impact" — the legal concept that a business can engage in illegal discrimination even if it does so unintentionally — arguing that the doctrine's use mandates discrimination and hinders merit-based hiring.

Larger banks were more likely than smaller banks to move away from using DEI metrics, according to Compensation Advisory Partners, which conducted the analysis as part of a broader review of executive compensation trends at banks.

In fact, in the sample, just one bank with at least $50 billion of assets maintained "advancing diversity" as a broad goal for named executive officers in 2024, while four banks with less than $50 billion of assets included DEI goals for last year's pay.

Those banks that maintained DEI- and environmental, social and governance-related performance objectives in making executive pay decisions tended not to tie those objectives to hard metrics, said Kelly Malafis, a founding partner at Compensation Advisory Partners.

"I think those companies feel comfortable that they are on the right side of the legal interpretation and are therefore keeping their commitment to having a diverse talent pool," Malafis told American Banker. "If you look at the language, they want to attract and develop diverse talent. They're not saying they have specific targets or metrics."

"I have to assume they feel that's still supportable in this environment," she added in an interview.

Banks that have ditched DEI formulas are shifting to either financial metrics or more qualitative or strategic planning goals in areas such as digital transformation, cybersecurity and artificial intelligence, according to Shaun Bisman, a partner at Compensation Advisory Partners who was also involved in the analysis.

Banks started linking their executive compensation decisions to DEI goals in the aftermath of George Floyd's 2020 murder, as they were pledging to do more to eliminate the racial wealth gap. The idea was that by incorporating DEI factors into executive pay decisions, executives would be held more accountable for the banks' commitments to increasing workforce diversity.

The thinking behind the shift was, what gets measured gets done, said Jillian Kornblatt, a partner at Dorsey & Whitney law firm. The experiment spread across much of the industry, particularly at large and regional banks.

Wells Fargo was among the first banks to make changes. In 2020, the San Francisco-based bank said it would tie senior leaders' pay partly to their progress in improving diversity. 

In Wells' proxy last year, DEI was included in individual executives' goals as part of "talent, leadership and culture." This year, the DEI reference was removed. In addition, the prior-year "ESG" objective, which included DEI and community engagement and provided an update on the bank's DEI report, was renamed "community engagement" and did not mention the word "diversity."

Given the Trump administration's executive orders and the growing backlash against DEI, banks, many of which are federal contractors, are trying to reduce their risk, Kornblatt said.

So-called "DEI audits" are taking place at banks and other companies to get a handle on how the firms have incorporated DEI into the workplace and whether it may be considered illegal by the Trump administration, she said. Still, Kornblatt noted, the laws haven't changed.

"There's no one-size-fits-all because this is all executive orders or government agency guidance," Kornblatt said. "So in some ways, it's a question of the organization's commitment to what it's been doing and its risk tolerance to potentially be targeted by the administration."

Banks' shift away from DEI in figuring out leaders' pay is happening alongside a more general watering down — and in some cases, complete elimination — of diversity-related language in their annual reports. A February analysis by American Banker of banks' most recent annual reports showed that several U.S. banks were distancing themselves from their earlier diversity aims.

Bank of America's 2025 report excluded a section from the prior year's filing called "Diversity and Inclusion." Citigroup, which had been one of the most vocal banks when it came to diversity and inclusion, greatly scaled back its DEI language. And Wells, which stated a year ago that everyone at the bank "at every level" and "in every role" was expected to "champion diversity and inclusion," fully eliminated that language from its report.

The banks that have steered away from the use of DEI metrics in determining pay include U.S. Bancorp, M&T Bank and Cullen/Frost Bankers, according to Compensation Advisory Partners' review.

Banks that have continued to use DEI and ESG metrics include Wintrust Financial, Atlantic Union Bankshares and Bank of Hawaii, the review found. Rosemont, Illinois-based Wintrust maintained its prior-year language around individual performance objectives, writing in its 2025 proxy that "advancing diversity" remains one of its objectives for named executives.

Still, the $65.9 billion-asset company, in laying out CEO Timothy Crane's list of duties, made one relevant change. In last year's proxy, one of Crane's responsibilities was to "advance diversity and inclusion throughout the Wintrust enterprise." In the bank's latest proxy, that language was replaced by a discussion of Crane's responsibility to "advance career development throughout the Wintrust enterprise."

In response to a request for comment, a Wintrust spokesperson said in an email: "Our proxy language continues to reflect our commitment to ensuring our culture supports a vibrant and inclusive workplace for all team members."

Compensation

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By Nathan Place

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Richmond, Virginia-based Atlantic Union, whose 2025 proxy reiterated that a focus for executives should be to "attract, retain and develop diverse talent," declined to be interviewed for this story.

Honolulu's Bank of Hawaii, whose short-term incentive pay plan's metrics and achievements continued to include attracting and developing diverse talent, did not respond to requests for comment.

Conservative groups that criticize DEI, including the National Center for Public Policy Research, applauded the removal of DEI metrics in determining executive compensation at banks.

Corporate executives should not be compensated based on "how well they discriminate on the basis of sex and race in hiring and promotion," said Stefan Padfield, executive director of the Free Enterprise Project, a division of the National Center for Public Policy Research.

"The faster corporations get back to focusing on hiring and promoting solely on the basis of merit, the better it will be for everyone," Padfield said in a statement to American Banker.

In the absence of relevant court rulings, it's reasonable to assume that more banks will choose to ditch DEI-related metrics as they make executive pay determinations, Kornblatt said.

"Until there are cases that generate decisions, there's going to be uncertainty, and when there's uncertainty, a lot of organizations opt to take the most risk-averse path," she said. "And banks are known for being generally risk-averse institutions."