‘We have not been effective.’ Wells Fargo ties progress on diversity to executive pay

Wells Fargo CEO Charlie Scharf announced Tuesday that the bank’s progress on diverse hiring goals will directly impact executive compensation decisions, as he laid out a series of internal changes to improve the experience of Black employees at the bank.

The San Francisco-based bank will add a new diversity and inclusion executive that reports directly to Scharf, he wrote in a memo sent to employees.

Wells also pledged to double Black leadership over the next five years. Currently, only 6% of senior leaders are Black, according to the memo.

The moves are some of the most aggressive on Wall Street to improve the standing and experience of Black workers at the bank. Banking has made significant strides in advancing women into leadership roles in recent years, but the amount of Black bankers has remained stubbornly low.

“The pain and frustration with the lack of progress within both our country and Wells Fargo is clear,” Scharf said. “While I do believe that caring about diversity and inclusion is part of the culture of our company, the facts are clear — we have not been effective in creating enough diversity or a consistently inclusive environment.”

As a part of the bank’s year-end evaluations, senior executives will be evaluated on their progress in increasing diversity in their divisions, according to the memo. Tying pay to diversity is a strategy that banking diversity advocates say is an effective way to increase racial and gender diversity.

In addition to the new goals, the bank will also begin anti-racism training for managers, starting with senior executives, and will host new education sessions on race.

‘The unfortunate reality’

The memo also underscored some of the entrenched difficulties in advancing Black bankers.

When it came to increasing diversity in Wells Fargo’s operating committee, the group of most-senior executives that currently has no Black members, there was an issue. Scharf said that the industry generally lacked senior Black talent in banking that had experience in handling the bank’s enormous regulatory issues.

“The unfortunate reality is that there is a very limited pool of Black talent to recruit from with this specific experience as our industry does not have enough diversity in most senior roles,” Scharf wrote.

He said he is committed to adding Black leadership to the committee, but that he should be judged on that progress two years into his tenure as CEO. Scharf started as CEO in October.

A mixed record

Wells Fargo, founded in 1852, has a mixed record on race for a bank, both recently and deeper into its history.

Wachovia, which Wells Fargo purchased in 2008 in the depths of the subprime mortgage crisis, had deep ties to slavery.

Before the Civil War, a South Carolina bank that later became part of Wachovia regularly accepted slaves as collateral for loans. A different Wachovia predecessor built a railroad through northeast Georgia using hundreds of slaves, some owned by the bank.

Wachovia apologized for its role in slavery in 2005, after municipalities across the U.S began to prod banks to acknowledge their profits from slavery.

Wells Fargo has roughly 27,000 employees in Charlotte, a legacy of the Wachovia purchase.

Even recently, the bank has struggled in its treatment of poor and minority communities.

In 2017, the bank’s Community Reinvestment Act rating was downgraded to “Needs to Improve” by the Office of the Comptroller of the Currency.

The rating measures a bank’s performance in meeting the credit needs of its entire community, particularly poorer areas. Part of the reason behind the downgrade was the way the bank treated minority neighborhoods, military personnel and new mothers.

That rating was upgraded to “Outstanding” in May.

This story was originally published June 17, 2020 at 10:34 AM.