The Case for Aligning Diversity Initiatives with Incentive Compensation
Remember a few months ago when organizations denounced systemic racism and said they were going to put initiatives in place to make their workplaces anti-racist and more equitable? Yep, I do too. The question becomes, “How are they doing?” It’s time for organizations to move past their words and move toward action.
That being said, I can see how this is going to be hard. It doesn’t mean that organizations don’t want to do it. But it will be hard. In many organizations, the way to create real change is to align goals with compensation.Gregg Passin, senior partner at Mercer, says that companies who want to “pay more than lip-service to their diversity, equity, and inclusion (DEI) goals are considering linking them to incentive plans.” So, I asked Gregg if he would share some details and thankfully, he said “yes”.
Gregg, thanks for being here. My apologies but I’m going to start out with a cynical question. Why should organizations consider linking DEI practices and incentive compensation? Shouldn’t organizations pursue DEI initiatives simply because it’s the right thing to do?
[Passin] It certainly is the right thing to do, and all organizations should assure the representation of their workforce reflects the communities they serve and are located, assure equitable treatment in pay, promotion, and other opportunities, and foster a sense of inclusion for all.
Some organizations will be able to do that without including it in their incentive plans, and some have already. Others will do so for optics reasons – to show all of its stakeholders that this is a critical mission that will affect pay, including on the downside for not achieving goals. And, some organizations that are very process-oriented should do so because that’s how they operate: everything that needs to get done go into incentive plans.
I believe that representation and inclusion are better metric choices because success in both requires programmatic commitment, strategy, and effective execution. Equity should be a requirement. For example, achieving pay equity needs to be expected; no one should get an incentive for achieving that. The reward for that is keeping your job.
If an organization is considering this (linking DEI and incentive compensation), should it only be at an executive level? Why or why not?
[Passin] Most actual DEI progress is made within the organization below the executive level. Ideally, anyone who can affect DEI change should be measured at some level.
But, some organizations prefer to start at the executive level because it is easier to introduce something new to fewer participants and, again, for optics. Some organizations also know that if the executives are being measured on DEI progress (or any metric) that others in their organizations will soon be aligned to it as well.
What are the 2-3 most common metrics that organizations can use to track DEI?
[Passin] Most use increased representation based on race and/or agenda: percentage of the workforce or percentage of leadership positions. Some will express that as growth and some as a desired state over time. Other metrics include inclusion of under-represented groups in all candidate slates and increased engagement with a more diverse supply chain network.
Increasingly, companies are looking at inclusion, measured by employee engagement scores or other forms of employee sensing.
For organizations considering the inclusion of DEI in incentive compensation, how can HR help create buy-in?
[Passin] To be successful, DEI needs to be seen as a business priority and not an HR initiative. Senior leaders, starting with the CEO and the CEO’s direct reports as well as the Board of Directors, need to fully support and embrace the organization’s DEI strategy and programs. HR can facilitate that buy-in and also help create the culture change needed to be successful.
Final question. This is a question about incentive programs in general. Sometimes incentive plans can be simply a “numbers game”. How can organizations ensure that, when they’re designing (or revising) an incentive compensation program, it truly achieves the desired positive result?
[Passin] Any metric needs to be tied to the most critical outcomes for the organization. Of course the compensation program can’t support every single thing that needs to be done. There need to be other programs (performance management, succession planning, etc.) that capture some of these outcomes as well.
Metrics need to balance the interests and expectations of participants, shareholders, and the company, and goals set to incent movement in the right direction.
I want to extend a huge thanks to Gregg for sharing his experience with this matter. Be sure to check out the Mercer blog for more insights on health, wealth, and careers.
I agree with Gregg that this approach might not be everyone, but it does open the organization up to discuss accountability. Organizations cannot make promises to employees, customers, and their communities without being able to explain how they will self-monitor and account for their words.
Image captured by Sharlyn Lauby while exploring the streets of Gainesville, FL
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