Diversity and Compensation

While companies talk about strategies to achieve diversity, equity and inclusion, workers just want a fair shake. From an employee’s point of view being treated fairly means that you have the same shot at success as the person next to you. It means that you don’t have disadvantages that you can’t control and can’t make up for in the eyes of your employer. It means that your managers are less likely to purposefully (or unconsciously) limit the opportunities you receive or how you are recognized and rewarded, due to their own blind spots or even conscious prejudices.

It’s important to note here that “equity” is important but it doesn’t fully solve the diversity and inclusion problem. Just because people are paid fairly, doesn’t mean their managers are free of unconscious bias, that they are hired into leadership positions or that they are given advancement opportunities open to their more privileged peers. However, pay equity would go a long way towards empowering employees to identify situations where they are being under-compensated and perhaps treated unfairly. This is why the “E” of equity is important alongside the “D” of diversity and the “I” of inclusion.

Consideration Requirement:

• Make gender diversity a requirement for recruiting new board members. Modify existing requirements to focus on candidates having the right experiences rather than requiring prior board experience.
• Embrace diversity in the boardroom. This sends a clear and powerful message to employees and members about the credit union’s commitment to diversity, as well as opportunity and equality. The board, CEO, and other C-suite leaders must be committed to ensure long-term success.
• Support actions that promote and address gender equality issues including equal pay, power and decision-making, personal safety, interpersonal work relationships, and community involvement.

DEI metrics for performance-based compensation are currently used by ~20% of the Fortune 200 companies, mostly in the annual incentive plan as part of a scorecard or individual performance assessment (vs. a quantitative metric with an explicit weighting). With increased focus on these topics, we expect both the prevalence and prominence of DEI metrics to increase markedly in the next few years. Several companies including Nike and Starbucks have already recently announced that they will be tying executive pay to DEI metrics for the first time.

Conditions Needed to Optimize DEI (Diversity, Equity, Inclusion) Metrics in the Pay Program

• There is a well articulated strategy for execution and clarity on how success will be defined.
• There is an understanding that elevating DEI may send unintended signals (e.g., tying pay to DEI but not sustainability may send a message about company priorities).
• The DEI metric(s) are part of a balanced, comprehensive assessment. Narrowly defined metrics can miss the spirit of the overall commitment (e.g., meet recruiting targets, but miss on culture).
• There is a willingness to maintain a DEI component in pay for an extended period of time.
• There is a willingness to set real, stretch goals that are durable and can withstand shifts in strategy.
• If goals are missed, boards are willing to disclose externally how or why goals were not achieved.