Advisor Blog | Jun 2021
Evaluating Your Current DE&I Position
How to analyze your company’s current state before thinking about DE&I goals for incentive compensation plans.
Diversity, equity, and inclusion (DE&I) are now essential areas of focus for companies. DE&I has been an emerging point of interest for several years and reached a crux in 2020. It is clear companies want to and feel the need to incorporate DE&I initiatives into their organizational goals. It is less clear what the best way to go about this is. Should executives be held accountable to specific quantitative DE&I goals? Should the goals be more holistic in nature? Do DE&I goals belong in short- or long-term incentive plans? The answers to these questions are unique for each company, but the common denominator for all organizations is the need to understand their current state and identify areas for improvement. The following questions and commentary provide an outline for companies to think through the most appropriate way to approach and incorporate DE&I initiatives in their own organizations.
Incorporating DE&I objectives into incentive plans should only be considered once an organization has established its DE&I infrastructure. This implies having a clear baseline, selecting measures which provide a strategic viewpoint into DE&I health, a strong track record of measuring these metrics, and an appetite for setting goals for change.
It is relatively simple to select easily measurable figures such as representation percentages, hiring and promotion rates, and/or turnover rates at the firm level or among leadership positions. While easy to measure, overall representation is a lagging measure which changes slowly over time. Hiring and promotion rates provide a clearer insight into actions that are taking place to achieve greater diversity. Turnover, on the other hand, provides a perspective on inclusiveness. If there is a single area that an organization wants to focus on to make progress, it may be appropriate to consider one of these metrics in an incentive plan. That said, focusing solely on one metric may be too narrow for most organizations and fails to acknowledge the complexity of truly advancing an organization’s DE&I agenda.
To create a more holistic view, we suggest using a diversity health index or scorecard (accounting for recruiting, retention, promotions, succession planning, performance management, etc.). This allows a company more flexibility to evaluate results from a broader perspective. Over time, an organization can determine how to best employ this scorecard to drive change. It may be something shared with the executive team, all leaders, all employees, and eventually incorporated into an incentive plan.
Incorporating DE&I issues into corporate initiatives and goals will continue to evolve. To determine the best path for each organization, it is essential to understand the company’s current state. Pay equity and/or gap analyses along with a DE&I survey will provide a baseline and help to design the most effective approach for incorporating DE&I into the organization’s initiatives. It is not out of the realm of possibility that DE&I initiatives and goals belong in incentive plans, but it is imperative to conduct a more thorough analysis before taking that action to understand where the organization is and where it wants to be.