The past few years have seen a tremendous amount of new attention paid to social issues and reform. Institutions are being called upon to demonstrate more diversity, equity, and inclusion (DE&I) concern, as well as positive action toward achieving it. What’s more, to ensure that those concerns receive more than mere lip service, some corporations are using compensation to drive action on DE&I.
Some Major Corporations Already Do So
Starbucks and McDonald’s are two examples of organizations that have created long-term incentive programs with DE&I metrics as one of the factors determining executive recompense. At Starbucks, the management team is expected to meet three-year targets for representation among Black, Female, Indigenous and Latino members of the company’s management team.
McDonald’s interim goal is to expand the female membership of its management team from 37 percent to 45 percent worldwide by 2025. The organization’s long-term goal is to achieve gender parity by December of 2030. Moreover, the company is striving to expand the percentage of traditionally underrepresented groups in the senior director role or greater from 29 percent to 35 percent by December of 2025.
In both instances, the existing executive team will be graded on the company’s performance toward reaching those goals and rewarded accordingly.
However, More Can Be Done
Despite the existence of these high-profile advances, this practice is more the exception than the norm. According to the human resources consulting firm Mercer, this link between compensation and DE&I is still a relatively infrequent practice.
Mercer estimates that only 15%-20% of S&P 500 companies include DE&I metrics in their executive incentive plans. What’s more, of those, only about 5%-10% have an objective, quantitative DE&I metric. Simply put, more companies need to include DE&I goals and accomplishments as part of their subjective individual or strategic performance metrics.
Questions to Consider
Companies seeking to incorporate this should consider the following:
- 1. Where is our company today on DE&I? Where do we want it to be? By when?
- 2. How will we create an environment within which to support real DE&I change?
- 3. Will we use a Short-term Incentive (STI) Plan or a Long-term Incentive (LTI) Plan?
- 4. What DE&I metrics will we track?
- 5. Will our measures be quantitative and objective, or qualitative and subjective?
- 6. Who will be held accountable?
According to the experts at Mercer, the success of your DE&I incentive metrics will depend on how you address each of these questions. Moreover, along with how you calibrate executive compensation consulting to the needs of your business, the challenges and strengths of your culture and your company’s specific goals around DEI will play a determining factor.
Is This Fair?
Proponents of this approach cite the fact that enterprise already uses this tool as a reward for the achievement of other types of financial and business objectives. So much so that executives are accustomed to this inducement to ensure that their personal goals are in step with those of the companies they manage.
A multiplier effect comes into play in this regard as well. With the senior management team on board with a specific practice, it becomes easier to shift the culture of the company in a particular direction.
So yes, using compensation to drive action on DE&I is quite fair. Moreover, when one considers the fact that high levels of diversity, equity and inclusion have been shown to foster advantages competitively — as well as serve as a catalyst for increased individual and organizational performance — the question becomes: what are we waiting for?