Yes or No: Compensate Executives for Hitting Their Diversity Goals?

  • Transparency: a behind-the-scenes look at my day-to-day.
  • Inclusion: bringing others along on the journey.

Executive Compensation x DEI Goals

Question:

Answer:

Re-Aligning Incentives: From Shareholder To Stakeholder Capitalism

  1. Principles of governance
  2. Planet
  3. People
  4. Prosperity

Stakeholder capitalism metrics like these are a step in the right direction.

Beware Of The Subtext: Not All Comp Programs Created Equally

  • Sandbagging: Are companies deliberately setting low or easily achievable diversity targets?
  • Performative metrics: Are the DEI targets simply forward-facing manifestations of what the company was already planning to undertake? Performative diversity compensation doesn’t bode well at a time when the CEO to unskilled worker pay ratio is 354:1.
  • Size of compensation: What percentage of executive pay is linked to DEI goals? 10 to 20% seems to be the sweet spot for many companies. Below 5% of a short-term incentive plan seems ineffective at catalyzing meaningful change.
  • Time horizon: Are DEI goals linked to short-term incentive plans like the annual bonus, or long-term incentive plans, which hold more weight as a percent of total compensation? The latter is more conducive to sustainable value creation vis-à-vis DEI.
  • Types of metrics: What metrics are you using? And how are you measuring them? For DEI metrics to be meaningful, they need to go beyond employee representation and account for equity of opportunity, equity of pay, and equity of performance. They also must be disaggregated by gender PLUS race/ethnicity PLUS age.
  • Tyranny of the metrics: The wrong metrics can undermine progress. One study found that companies seeking to increase the representation of women in leadership overpaid high-potential women in an effort to meet their DEI targets. It came at the sacrifice of women in all other ranks who continued to experience inequity.

Final Thoughts

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