I previously blogged about how it may generally be easier to implement diversity, equity and inclusion metrics compared to climate metrics. A recent Semler Brossy article points out that while nearly 30% of the S&P 500 companies used a DEI metric in their executive incentive plans last year, these metrics shouldn’t be seen as a quick fix to a hard problem. Excerpted below are some of the common pitfalls companies need to be cognizant of with DEI metrics:
– Boards may be tempted to focus on the diversity aspect of DE&I, which is the easiest to measure. However, the “E” and “I” are just as critical. Representation of women and minorities may increase, but without a culture of inclusion, companies risk tokenizing groups or gamifying quotas.
– Incentives have limited real estate. Beyond DE&I, other strategic priorities can get crowded out of incentive design if not considered holistically. Rank ordering priorities can help. Some companies may find that other tools effectively reinforce DE&I, such as performance management systems, promotions, and terminations.
– Acquiring an organization with a less diverse population could harm progress toward DE&I goals, yet the deal might still be in the company’s strategic interest. Boards should include allowable adjustments in incentives to anticipate these challenges or design their plans to maintain the legacy business goals separately until the next performance cycle begins.
– Meanwhile, every country has a different mix of ethnicities and legacies. International boards may decide to measure gender globally but race and ethnicity only in the United States. Alternatively, the board could allow each region to set its own goals.
Ngozi previously blogged on PracticalESG.com on steps companies can take to ensure that their DEI efforts aren’t just performative gestures. While incentives are a powerful tool, it’s just one part of the equation — it’s critical for boards to learn what companies are doing to push the needle on a more diverse and inclusive culture. If you’re a PracticalESG.com member, you can find the replay of our “Using Diversity, Equity & Inclusion Data: Goal-Setting & Reporting” workshop — our panelists talk about the tangible behaviors and practices needed to drive inclusion and what information boards should get to properly monitor DEI progress.
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— Emily Sacks-Wilner, CompensationStandards.com, June 29, 2022