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Should banks tie bonuses to the number of women in senior roles?

(AP Photo/Kirsty Wigglesworth)
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In an effort to increase gender diversity at the top of British companies, a government-commissioned review recommended on Wednesday that the compensation of U.K. banking executives should be tied to the number of senior women appointed at their firms.

The review, which was chaired by Jayne-Anne Gadhia, the chief executive of Virgin Money, also called for banks to appoint an executive responsible for diversity and inclusion issues. The preliminary recommendation will be followed by a call for evidence, and then a final report will be published before next year's budget.

The move follows several other separate, and at times bold, proposals by the U.K. government recently to improve diversity in U.K. firms. They include making applications to several jobs and universities name-blind to reduce discrimination in hiring, pledging to force employers to publish data about their gender pay gap, and recently raising a government-backed target for women to hold 33 percent of all seats on corporate boards.

Currently, about 20 percent of directors are female at the 250 largest British firms, similar to the roughly 19 percent of U.S. board seats at S&P 500 companies held by women. According to their 2014 annual reports, several major U.K. banks have women in less than a quarter of their senior roles. At HSBC Holdings, women hold 24 percent of senior jobs; at Barclays it's 22 percent; and at Royal Bank of Scotland Group it's just 16 percent.

Linking top bankers' bonuses to their firm's improvement on these numbers would be one way to get executives' attention. "My report proposes addressing the issue in a way that the City will recognise," said Gadhia in a statement, referring to the name often used to describe London's finance industry. "Make it public, measure it and report on it. What gets published gets done."

While the idea may sound some alarm for British bankers, the overall concept of linking diversity goals and compensation is not exactly new. Many companies, including KraftSodexo and LinkedIn, have tied bonuses to broad corporate progress on diversity goals.

Many financial firms already do too, said Alan Johnson, an executive compensation consultant who works with Wall Street banks. "A lot of banks and other firms look at diversity across the continuum" when it comes to pay, he said—for instance, they'll examine an executive's efforts and the company's progress on promoting and hiring female, minority, disabled and even veteran employees.

More unusual, however, is the idea of doling out bonuses for performance against specific targets—which the U.K. report is proposing, though it did not detail how exactly that would work. "Companies have always been reluctant to put a number on it, because of the fear that you're going to hire people who are less qualified," Johnson said. Instead, firms tend to say "we want to see progress, we want to see hiring, but firms have been reluctant to be too prescriptive."

The other fear, of course, is that just as bankers have tried to manipulate other bonus incentives, they could try to game this one. And that—or even the perception that could be happening—is a liability. "If you stigmatize people with the idea that the only reason you were hired is to meet a goal, that is one of the dangers," Johnson said.

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