Link compensation to DEI goals to hold execs accountable, Mercer says

Dive Brief:

Few companies link executive compensation to diversity, equity and inclusion (DEI) goals, which can be a missed opportunity, according to Mercer. The HR consulting firm explained in a Sept. 24 report how accountability for long-term change in DEI can aid in reaching company goals at a time when employees and customers are calling for tangible plans for racial equality.
Mercer estimated that 15%-20% of S&P 500 companies include DEI metrics in their executive incentive plans, according to a report by Gregg H. Passin, senior partner, U.S. executive solutions leader at Mercer. Of those companies, 5%-10% have an objective, quantitative DEI metric. Meanwhile, other companies have included DEI accomplishments and goals as part of individual or strategic performance metrics, Passin said.
The report recommended that organizations be introspective, question current DEI practices and devise a timeline for progress. Creating an environment in support of change, establishing DEI metrics, deciding on a short-term or long-term incentive plan and establishing who will be held accountable are also topics to consider, according to the report. As every company is unique, the recommendations are "intended to help companies ask the right questions about how to best track and reward DEI advancement in your organization," Passin stated.

Dive Insight:

As employers launch or renew DEI efforts, eradicating the check-the-box mentality is essential, according to practitioners. There are some major companies that are ahead of the curve in executive accountability for change.

Accenture, Johnson & Johnson and IBM, for example, all link executive compensation to certain diversity benchmarks, according to Working Mother. Microsoft announced in 2016 that executive bonuses would be tied to diversity goals, Bloomberg reported. And, Uber announced in 2019 that it tied goals to increase the percentage of women and underrepresented employees in specific roles to compensation for senior executives.

Nearly all of the top companies listed in Diversity Best Practices' 2020 Inclusion Index released Aug. 18 set diversity percentage goals and 65% tie compensation to DEI goals, the report found. The index of 98 organizations was led by 20 companies that comprised the top 10% in scoring, earning an 81% or higher. "Diversity, equity and inclusion continues to be a topic of critical importance, especially in these times of heightened racism and social injustice," Deborah Munster, vice president of Diversity Best Practices said in a statement in August.

In June, Wells Fargo CEO Charlie Scharf told staff in a memo that the company would soon tie executives' pay to progress in DEI, according to Banking Dive. Scharf said that in the next five years, the bank intends to double the number of Black leaders. However, Scharf also faced backlash for a summer Zoom call with employees during whichhe reportedly said that there's a "limited pool of Black talent to recruit from."

"Effective programs, plans, and policies will help drive a more diverse workforce that feels fully included in all aspects of their work and are treated equitably for all opportunities," Passin stated in the report.