September 30, 2020
Moving Forward: Linking D&I to Incentive Programs
– Lynn Jokela
We’ve blogged before about incorporating “people” metrics in executive compensation programs. A recent Mercer memo says it’s still not too common, while PwC’s annual director survey says only 39% of directors support including diversity & inclusion metrics in company pay plans. Mercer estimates only 15-20% of S&P 500 companies include diversity, equity and inclusion (DEI) metrics in their executive incentive programs and most don’t include an objective, quantitative metric. As investors are focused on company D&I initiatives and looking for progress, more companies may think about how to advance D&I efforts and incorporating related metrics into incentive programs. To get started, Mercer’s memo suggests companies answer these 6 questions:
(1) Where is your company today on DEI? Where do we want it to be and by when? Determine organizational DEI strategy and objectives and clearly communicate the information – you need to be able to measure DEI by identifying key outcomes. Determine metrics for evaluating success and set specific time frames.
(2) How will we create an environment to support real DEI change? Companies need authentic support from leaders of compensation plans and also from the board and other stakeholders.
(3) Will we use the short-term incentive plan or the long-term incentive plan?
(4) What DEI metrics will we track?
(5) Will our measures be quantitative and objective, or qualitative and subjective?
(6) Who will be held accountable? Some companies may prefer to start with a smaller, more manageable group of senior executives and expanding deeper into the organization later. Other companies may limit the program to the US, while others may extend the program globally. In determining the extent of the program, consider how you might communicate differently to, and across, groups.
Every company is different and what makes sense at one company may not be effective at another – but these questions provide a good starting point to help get everyone on the same page.