Is tying C-suite bonuses to DEI targets the answer to greater workplace equality?
Money talks, as the old saying goes. But will that end up being the case when it comes to progress on diversity, equality and inclusion?
It seems that’s a philosophy a growing number of companies are subscribing to, choosing to make leaders more accountable for DE&I by tying senior bonuses to progress. PWC’s 2022 global CEO survey showed that 11% of global CEOs have gender representation targets in their annual bonus or long-term incentive plans, while 8% have the same for racial and ethnic diversity targets.
It’s a strategy companies like global advertising network Dentsu, General Motors (GM) and McDonalds have implemented, centering an element of senior bonuses around meeting DE&I targets.
Dentsu in 2021 developed a structure where C-suite bonuses would be paid out – or not – depending on meeting a number of DE&I targets. One of those targets is to achieve 50% female leadership by 2025, up from current senior female representation of 35%, resulting in a mean gender pay gap of around 24%. In terms of policies that promote gender equality, Dentsu U.K. offers 20 weeks paid shared parental leave and a number of remote and flexible roles.
Its chief sustainability officer, Anna Lungley, said the structure creates a “powerful financial incentive” for the business to prioritize the delivery of its DEI strategy.
“This has created visibility and sponsorship across the network, and importantly created an understanding and fluency around the business case for gender equality,” said Lungley. “It’s already making a difference – we’ve seen regional, functional, and service line strategies align to our priorities.”
GM didn’t provide information or comments to WorkLife in time for publication, but sent the statement: “Our most senior leaders are held accountable for progress in diversity and inclusion within their strategic compensation.” In 2021, the company achieved a level of 32% of women in top management positions, up from 30% in 2020. Initiatives include flexible and remote working for appropriate roles, and 12 weeks equal parental leave.
McDonalds, meanwhile, has committed to linking 15% of its senior executives’ bonuses to meeting DE&I targets. The fast-food giant is aiming for women to comprise 45% of senior roles globally by 2025 and 50% by 2030 – up from 37%, while its plan is to have U.S. senior management made up of 35% individuals from underrepresented groups, up from 29%. McDonalds offers hybrid working for corporate roles.
It’s a strategy U.K. financial planning and employee benefits consultancy Punter Southall also implemented last year, in a bid to see more women join its senior management team – which is currently 100% male. Thirty percent of a senior manager’s annual bonus is linked to diversity-related goals, prompting managers to think harder about how they are going to achieve them and encouraging them to act sooner, said CEO Steve Butler.
Initiatives introduced to support female career progression include flexible and remote working, in-depth career development planning, reverse mentoring and replacing the executive committee of eight senior male managers with seven operational committees that include representatives from across the business. This has led to more diverse teams contributing to the leadership and business strategy, and participation from women at management-level operational committee meetings increased from 0% to 38%, said Butler. He declined, however, to share the company’s parental leave policy.
“We obviously have some way to go to balance our senior management team, but without these changes we never will,” said Butler.
Incentivizing leaders is one way organizations can create a competitive environment for realizing their DE&I goals, agreed Yolanda Chase, chief diversity officer at the Washington Technology Industry Association. But she notes how organizations that benefit from monetary incentive programs tied to DE&I will do so because they’ve also tied those incentives to holistic systemic change.
“Why would you pay incentive compensation to a leader who has met the talent representation goal, but may be falling short on retention and growth of that same diverse talent?” said Chase.
She recommends three things companies must do to support an effective compensation-based DE&I incentive plan for leaders. Firstly, evaluate the organization’s readiness for a holistic DE&I strategy and accountability measures. Secondly, educate, develop and measure DE&I leadership competency and capability. And thirdly, establish leader commitments by business unit that include measures for breaking down barriers for marginalized identities.
However, others don’t believe tying bonuses to DE&I targets will be what moves the needle. Brandi Baldwin, consultant at the DE&I consultancy, Calling All Allies Project, warns that tying compensation to DE&I goals can lead to tokenism.
“Companies can look like they are more diverse, when there may not be a culture of equity and inclusion,” added Baldwin.