Who is accountable for diversity, equity and inclusion? The organization. But can the larger workforce become inclusive and focused on diversity without leadership guidance? No. Therefore, the responsibility for diversity, equity and inclusion firmly lies with the top executives.
With such responsibility on their shoulders, leaders have become aware of how to implement such initiatives. But what they have not done is committing their time and efforts towards the same. MercerOpens a new window has now shared an estimate that only 15%-20% of the S&P 500 companies have included DEI metrics in their executive incentive plans, and only 5%-10% of those companies have an objective, quantitative DEI metric.
If executives have such an important role to play towards creating an inclusive workplace why are there no performance parameters on this front that are tied to their incentive payouts? Are they rewarded for their efforts and work in this direction, through variable pay just like the other business goals that are achieved? Do they get the right motivation to perform in this area? As per the above data from Mercer, this is not happening to the extent that it should.
Performance-Linked Pay for Work in DEI
As per the report, there are six questions that companies need to ask themselves â€“ the current position of the company in DEI, creating the environment for change, whether short-term incentives (STI) or long-term incentives (LTI) should be used, DEI metrics for tracking, qualitative or quantitative measures, and accountability. From an executive compensation perspective, LTI or long-term incentive is being suggested as the more appropriate approach since it captures the essence of DEI as it makes an impact over the long term.
Connecting what is paid out to the executives whether in the form of stock option payouts or short term annual bonuses, to how they have performed on DEI metrics is important for the kind of workplaces that are needed, in the future.
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Companies Who Have Followed This Approach
There are a few companies who have already followed or initiated this approach. Let us take a closer look at them.
In 2019, UberOpens a new window had formally announced that it will factor specific diversity targets when it calculates bonuses for its CEO and other top executives. This was done with the purpose of increasing the number of women and under-represented people in managerial roles. Besides the CEO, this new approach for bonus was applicable even for the CFO and the CPO. The metrics that have been defined are to increase the number of women in managerial roles and above to 35% by 2022 and increase percentage of under-represented employees at mid-level and above to 14% also by that time.
For Facebook, it started in 2014, by giving its staff recruiters more points for diversity hires. This lead to higher bonuses and as a result of that, women made up 31 percent of its global workforce in that year. However this was done at a lower level. To support inclusive behavior it has also instituted new metric for its employee bonus formulaOpens a new window which is the employees’ ability to tackle problems like misinformation and hate speech on its platform.
SodexoOpens a new window has also followed the approach of creating diversity metrics and a Diversity Index and Balanced Scorecard. These were then further connected to bonus compensation. This comprises of 15% of the executive team’s bonus as well as has ratings for the leaders in terms of their efforts in DEI. The scorecard has qualitative and quantitative elements wherein 60% of it is number driven and depends on how many women and minorities were hired, promoted and retained, while 40% is about promoting inclusive behaviors.
Companies like Microsoft and Intel have also been following the process of tying the executive compensation to diversity goals.
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While this is a good step, it is also important to see how it will create a long-term impact. Can a change in how one is rewarded or paid for their performance, result in a true change in their internal biases? That is yet to be seen.