The tricky dance of linking DEI to incentive pay

– Tying incentives to DEI is nuanced and unique to each company. Missteps can lead to unintended consequences or even undermine a company’s broader commitment to DEI.
– Three ways to accomplish this goal include: (1) commit to or enhance external reporting of DEI goals and progress, (2) incorporate a scorecard within the incentive program that includes DEI metrics, and (3) introduce DEI metrics with an explicit weighting in the incentive program.

This Semler Brossy article by Olivia Tay and Seamus O’Toole digs into using compensation incentives to promote diversity, equity and inclusion. Here is an excerpt about how to start:

Before diving in, boards should first identify the aspects of DEI that are most material to the company’s strategy and long-term success (e.g., is there a greater urgency to improve employee engagement and sense of belonging or is there a more pressing need to focus on increasing representation in senior leadership roles?). Does the company have a clearly defined strategy for tackling these DEI priorities? Are there key milestones or goals to gauge success against that strategy? Has the company made external commitments with respect to DEI goals?

This excerpt talks about the three paths a company can take:

As companies conduct materiality assessments and evaluate the conditions listed above, we see three potential paths companies can take with respect to elevating the importance of DEI: (1) commit to or enhance external reporting of DEI goals and progress, (2) incorporate a scorecard within the incentive program that includes DEI metrics, and (3) introduce DEI metric(s) with an explicit weighting in the incentive program.