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For decades, workforce diversity has been widely lauded—as a concept. Three years ago, theory was put to the test when some firms began tying executive compensation to DE&I progress. Now, that test is facing a new...test.
More recently, ESG (Environmental, Social, and Governance) initiatives—which often include DE&I efforts—have been met with some resistance in the business world. One major beverage retailer last year was sued by a shareholder activist specifically for linking executive compensation to the firm’s diversity endeavors. Despite this, over 70% of S&P 500 firms reportedly have some kind of ESG metric baked into their incentive plans. “Most of them have done this by dialing in on the ‘S’ side of ESG, where DE&I sits,” says Don Lowman, Korn Ferry Senior Client Partner and Leader of its Global Total Rewards business.
Leaders who are wary of anti-DE&I shareholder activists should know that there may be just as many pro-DE&I shareholders, says Fayruz Kirtzman, Korn Ferry Senior Client Partner in its DE&I practice. Kirtzman additionally stresses that not only does DE&I increase innovation on the business end, it also can increase a company’s appeal to Gen Z as both talent and customers. Over three-quarters of the Gen Z population reportedly state that a diverse workplace is important to them when assessing a company. “You’re not going to get Gen Z if you're not standing for the right values,” says Kirtzman. “They do their homework.”
Our experts say one concern from those who support linking pay with DE&I is that it doesn’t go far enough. “Most companies are tying it to short-term annual bonuses. You could very legitimately argue that performance really should be measured for the long term,” says Tom McMullen, Korn Ferry Senior Client Partner in its North America Total Rewards practice.
Lowman suggests firms explore compensation structures that pay out or vest after a few years to ensure that executives are focused on building best practices and succession plans that truly embed themselves in a company’s DNA.
According to Kirtzman, many firms have a slapdash approach to DE&I pay, the kind that isn’t rooted in a company’s current DE&I maturity and goals. “A DE&I audit or diagnostic is step one,” says Kirtzman. “Only then can you set metrics that make sense.” She also suggests that firms give employees a “test year” where executives are made aware of where they stand on the metrics without any financial consequences, so executives have time to adjust their talent management strategies if needed.
As the season of layoffs continues, some DE&I initiatives and personnel have been hardest hit. But our experts say that cutting back on diversity efforts as a short-term cost-saving measure may hurt firms down the road.
“If you truly believe that DE&I is key to your long-term growth, why would you cut into the bone on that?” Tom McMullen, Senior Client Partner, ESG and Inclusive Rewards
To learn more about how we can help you make the most transformative DE&I decisions for your organization, contact one of our experts today.
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