British Banking Industry Considers New Rules Tying Executive Bonuses to a Company’s Overall Diversity and Inclusion Efforts

While it’s not unusual for some U.S. executives to receive bonuses based on various diversity goals within an organization, regulators in the U.K. are looking into enacting a more formal and official program linking the two ideas together, making financial services more accountable for their hiring practices.

Bloomberg’s Aoife Kearins has reported that senior British financiers who receive bonuses from diversity goals and boards “could face extra membership targets under proposals from regulators.”

In a report from the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), U.K. officials also suggest that senior executives could be tasked with directly promoting diversity and inclusion efforts within their companies. Both groups added that a company’s diversity — or lack thereof — could potentially be used as evidence in cases of “non-financial misconduct.”

“While some progress has been made to improve diversity and inclusion in parts of the financial services sector over the last decade, the discussion is still in its early stages, and more needs to be done to speed up progress,” Sam Woods, chief executive officer of the PRA, told Bloomberg. “A lack of diversity of thought can lead to a lack of challenge to accepted views and ways of working, which risks compromising firms’ safety and soundness.”

Following the report’s publication, consultants and analysts will review possible solutions and programs to implement within the industry over the next few months.

According to Kearins, the renewed focus on diversity and inclusion within the British banking world is “the latest attempt from the regulators to encourage a broader range of people to join and lead the industry.”

“While large firms have already agreed to targets on promoting women at senior levels, the proposed goals would address more underrepresented groups as well as smaller companies and more junior roles,” Kearins reported.

Fortunately, U.K. industry leaders appear to be receptive to the change. In an interview with Bloomberg, Claire Tunley, chief executive officer at the Financial Services Skills Commission, said, “further action needs to be taken to mobilize the breadth of the change required.”

Nikhil Rathi, chief executive officer of the FCA, has also previously warned that “firms looking to join the London stock market could potentially face quotas on the diversity of their boardrooms.” Earlier this year, the President of NASDAQ suggested similar accountability measures could be implemented on the American stock exchange but ultimately backtracked on those plans.

Currently, Kearins reported that “just 6.8% of FTSE 350 board members are identified as directors of color, and the regulators cited research showing representation for ethnic minorities could be going into reverse.”

Underscoring just how far diversity, equity, and inclusion efforts have to go in the U.K., Kearins noted that “a report published in June [2021] by Women on Boards U.K. also showed about 8% of FTSE 350 companies had all-male executive teams at the end of last year.”

Related: For more recent diversity and inclusion news, click here.



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