TOTAL REWARDS ACTION RECORDING: TYING D&I METRICS TO INCENTIVE PAY, WITH ANI HUANG - 8/20/20

The August 20th i4cp Total Rewards Action Call welcomed about 80 Total Rewards and Diversity & Inclusion (D&I) professionals to join in call facilitator Mark Englizian’s interview with Ani Huang on tying D&I metrics to incentive plans. Huang is President and CEO of the Center on Executive Compensation and Senior Vice President of the HR Policy Association.

Key takeaways from the call:

  1. Data and poll results on use of ESG metrics. Englizian shared data on the prevalence of linking environmental, social, and governance (ESG) metrics to incentives, noting that 38% of Fortune 200 companies include Diversity & Inclusion metrics.

    An instant poll followed the data by asking attendees about the inclusion of ESG metrics in their organizations’ incentive and performance plans. By far, the greatest proportion (60%) of those responding said their organizations do not have ESG metrics in incentive plans or in individual performance criteria. Twelve percent said ESG metrics are included in their annual incentive plan design.

  2. The D&I/comp link. According to Huang, HR Policy Association attention has been focused on D&I,including disclosure of workforce demographics and diversity goals. Some companies are being pressured to make internal goals public. When the conversation moves to how organizations can ensure that their diversity goals are achieved, ties to executive compensation arise. Huang says there are likely ways to ensure accountability simply through public disclosure, but many companies are considering changes to the percentages of executive pay tied to D&I goals or are creating new metrics to apply.

    When it comes to leader accountability, relatively low weighting of D&I measures (perhaps 5% of annual bonus) may be insufficient to drive necessary behaviors, says Huang. Other obstacles might include executives’ perceptions that D&I goals aren’t within their line of sight, goal achievement might be beyond their control, and organizational culture may not be supportive or conducive to retaining diverse talent.

  3. Center on Executive Compensation research (representing approximately 140 companies) reported that about a quarter of firms already include a D&I metric in their compensation plan, Huang noted. However, she anticipates significant growth in that number since another 42% of the companies her organization polled said they were considering or planning to add a D&I metric in the near future.

    She says that most companies now using a D&I metric include it in their annual plan and about half put it in the individual performance component of the plan. Just over one in four (27%) use the D&I metric as a stand-alone item. Huang notes that use of the metric in the individual component often results in its being lumped together with other metrics—engagement, culture, and more. She sees a potential future shift to including the D&I metric in the long-term plan in keeping with the long-term nature of the goal.

  4. A common reason diversity goals fail, says Huang, is lack of CEO advocacy. “The goals get pigeonholed in D&I or HR and don’t have a business imperative tied to them. Where they are championed by CEOs and senior management, the goals become priorities for the board and result in more successful levels of achievement.”

    To hold people managers at lower organizational levels accountable for improving D&I,  Huang says external pressures can come into play. When companies (especially those that have recently and publicly expressed support for Black Lives Matter) are pressed to disclose racial and ethnic demographics, the idea is that accountability will naturally follow.

    “With more of those companies being pressured to disclose, accountability becomes a business imperative,” Huang explains. “Failure of demographics to support the organization’s stance (or failure to disclose or show improvements in the data) can become a brand or reputation risk for companies. At that point, organizations treat it like any other business imperative in terms of how they hold managers accountable.”

The recording of the session and its full range of discussion topics is available at i4cp’s Employer Resource Center, which also provides the latest research and practices to help organizations support their employees and respond effectively to the COVID-19 pandemic.