Source · Select Committees · Treasury Committee
Recommendation 5
5
Accepted
Paragraph: 45
Make linking executive pay to diversity a firmer 'comply or explain' commitment under the Charter.
Conclusion
We heard that linking senior executive pay and bonuses to performance on diversity and inclusion can be an effective way to incentivise change, though this practice is not currently widespread. One of the Women in Finance Charter principles is for firms to have an ‘intent’ to link pay to delivery on gender diversity targets. Eight years on from the launch of the Charter, we think it is now time to sharpen this principle to increase its effect. We therefore recommend making the link to executive pay a firmer commitment under the Charter, on a ‘comply or explain’ basis.
Government Response Summary
The government agrees that linking executive pay to diversity performance is effective and states that a 'comply or explain' mechanism for this is already central to the Women in Finance Charter, with 84% of signatories currently having such a link and ongoing monitoring.
Paragraph Reference:
45
Government Response
Accepted
HM Government
Accepted
We agree with the Committee that linking senior executive pay and bonuses to performance on diversity and inclusion can be an effective way to incentivise change. HM Treasury has continually ensured that accountability sits at the heart of the Women in Finance Charter. Currently, signatories are asked to link their executive pay to delivery on gender diversity targets during the onboarding process; signatories who choose not to have a link to pay are then required to provide an explanation. In the latest Annual Review, 84% of signatories recorded having a link to pay, an increase of 3% compared to 2023 data, of which 70% stated they believe this is effective. In addition to this, HM Treasury tracks how signatories are adhering and performing against their Charter commitments on an annual basis. This further requires firms to update the department on how they are approaching the link to pay principle regularly. HM Treasury will continue to ensure that a link to pay remains central to the Charter and will continue to hold firms to account.