DiversityInc - Spring 2006

programs for months. The company was facing lawsuits claiming links to deaths from the use of Vioxx. And then Merck’s CEO Raymond Gilmartin resigned.

Considering the severity of the Vioxx issue, one could forgive Clark if diversity wasn’t on his agenda when he first addressed employees as CEO. But it was.

“He hadn’t even been CEO for 24 hours and in his first employee meeting, Webcast worldwide, he made clear that diversity is an important part of Merck’s strategy,” says Dagit.

Words, however, have to be supported by deeds. The racial and gender breakdown of Clark’s 10 direct reports includes three black executives, three female executives, one Korean-American executive and three executives born outside of the country. That communicates a clear message that people who are not white men are welcomed and expected to be part of the company’s leadership. Besides that, Clark is planning in 2006 to enhance the portion of executive compensation tied to accomplishment of diversity-management goals. Linking diversity goals to compensation is an important method by which CEOs demonstrate the seriousness of their commitment.

CEO Compensation Tied to Diversity

Top 10

90%

Top 50

88%

Companies*

91+

47%

90% of Top 10 companies link management compensation to diversity initiatives

20% 30% 40%

50% 60% 70% 80% 90% 2005

100%

Source: DiversityInc

*Companies Ranked 91 and Higher on the Top 50 Survey

Executive Accountability

A common trait of the six companies interviewed is that they link executive compensation to diversity. This focuses managers on diversity-management practices—developing a diverse talent pool and developing leaders to succeed current executives. Diverse leadership will respond better to a diverse consumer market.

“It has forced managers to be more proactive in how they fill positions and how they source prospects for new positions,” says Sandy

VanGilder, senior vice president, diversity at JPMorgan Chase.

VanGilder adds that “something in the neighborhood of 20 percent of compensation” is tied to diversity and other people-management goals at JPMorgan Chase, which is No. 25 on The 2005 DiversityInc Top 50 Companies for Diversity list. A survey of Top 50 companies by DiversityInc found their average range at 15 percent.

Besides linking executive compensation to diversity goals, Top 50 CEOs make diversity management a leadership issue through reviews. At JPMorgan Chase, Jamie Dimon, the president, COO and director— who became the company’s CEO this year—requires that all of his direct reports, the leaders of the six core businesses, create diversity plans for their business units. Those plans are submitted to the management committee at the end of the year.

In 2004, JPMorgan Chase merged with BankOne. Often fol-

lowing a merger, redundant positions are eliminated. And at less diversity-focused companies, diversity has been cut because it’s considered “soft” and expendable. Following the merger, however, the diversity department brought together both budgets and employees under one roof. Dimon, along with current Chairman and CEO Bill Harrison Jr., brought more discipline in the company’s talent-management-development process by being hands on, says VanGilder. The two sit down with their direct reports and assess the succession plans for the top 300 employees. CEOs set the course and their leaders follow.

“Because that exercise happened with the CEO and COO, those business leaders then repeat that exercise in their lines of business,” says VanGilder. “This is the first year we’ve done this, but there’s been close to 2,000 employees assessed in about a three-month time period.”