Does Shareholder Pay Equity Win At Kroger Provide A Warning For Boards?

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Companies that are not voluntarily disclosing pay equity data may want to consider the following before shareholders make it a concern.

Pay equity advocates won an important victory in June when a majority of Kroger shareholders approved a proposal asking the company to report the unadjusted median and adjusted pay gaps across race and gender at the grocery store chain’s annual meeting. The proposal filed by investment management firm Arjuna Capital and Proxy Impact, which also received strong support from the UFCW 3000 union, may be an example of how pay equity advocates will press companies on this issue in the future.

Shareholders have advocated for more transparency when it comes to pay equity for women and minorities in recent years. Companies such as Home Depot, Lowe’s, and Target have made commitments to publicly report on pay equity, while shareholders at Apple, Amazon, Boeing and Goldman Sachs voted against pay equity proposals asking for more transparency this year. It appears that shareholders felt certain pay gap data disclosed by Apple, Amazon, Boeing and Goldman Sachs was sufficient, whereas pay gap information disclosed by Kroger was not. Corporate board members may want to examine to how the differences in data that was disclosed at each company may have affected the outcomes of the proposal votes. Board members may also want to monitor the results of upcoming pay gap proposal votes at Nike and Oracle scheduled for later this year to inform their thinking on this issue as well.

Companies that are not voluntarily disclosing pay equity data may want to consider the following before shareholders and employees make it a concern:

• Employee relations can be enhanced by a commitment to pay equity. With so many companies complaining about “worker shortages”, a well-publicized commitment for equal pay could be an advantage in recruitment and retainment efforts at many firms. Employees who are being asked to return to the office may be more willing to do so if they know they are being paid equitably. They may also be willing to remain with a company if they believe they are being paid the same salary for the same work, no matter their race or gender.

• Attention to pay-equity issues may help limit legal risks. For some companies, reporting pay gap or pay equity data is a state requirement, so failing to comply may put the company at odds with regulators. Furthermore, pay equity has become a large enough concern that companies that do not report some information about pay could be subject to lawsuits. News reports say pay equity lawsuits are on the rise, so companies that have not corrected pay disparities are risking potential lawsuits.

• Shareholders appear to be willing to team up with employee groups and unions on pay equity issues. The Kroger example may be an indication that when shareholders team up with organized labor unions, it can increase the pressure on companies to yield to employee demands. Public disputes with unions are never positive for a company, so corporate boards may need to improve employee relations before organized labor gets involved. Enhancing employee engagement will come in handy down the line because there are many more issues that employees are willing to oppose their companies on publicly, and corporate boards need to think of strategies to deal with these issues before they escalate into shareholder proposals or job actions.

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