- Separation of DEI/ESG and compensation has emerged. Some companies, such as Starbucks, are moving away from financially incentivizing diversity-related goals.
- What makes sense for your company? Rather than rushing to make a change, take the time to analyze what DEI/ESG goals fit your business mission and how to best achieve them.
- Diversity focus is here to stay. External demand for diversity-related transparency, and research on the business benefit of DEI, is becoming increasingly standard.
With more eyes on diversity and social responsibility in recent years, many companies were quick to set related goals for their organizations — adding weight by tying those goals to executive compensation. In fact, 72% of S&P 500 companies were listing environmental, social and governance (ESG) goals in their incentive plans in 2023. But now, the trend may be shifting in the other direction, with some businesses no longer explicitly linking ESG or diversity-related goals and metrics to compensation.
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In a recent example, Starbucks just approved a new compensation package that no longer includes a bonus for executives related to diversity, equity and inclusion (DEI) goals. The new package more generally references “talent” targets and increases the share of bonuses related to reaching financial goals from 70% to 75%.
Some companies have explored a shift away from incentivizing DEI benchmarks following the Supreme Court’s ruling against affirmative action in 2023. Many consulted with attorneys or consultants to determine if their DEI initiatives could be subject to similar legal action and reassessed their existing programs.
Other companies are taking a fresh look at their goals and compensation structures as they wrap up their long-range 2025 plans and look ahead to 2030 plans, said Blair Jones, managing director at Semler Brossy.
But disconnecting ESG and DEI goals from compensation shouldn’t necessarily mean dropping the goals altogether — or forgetting the benefit of reaching them, she said.
“Investors are still asking about these topics,” Jones said. “If these are important issues for companies, they may want to be careful they’re not signaling a turn-away, but just an evolution.”
What to Consider Before Removing Ties to Compensation
First and foremost, Jones advised companies shouldn’t jump on the bandwagon to separate DEI goals and compensation any more than they should have jumped on the ESG bandwagon in the first place without a set plan.
By analyzing their organizational mission, some companies may choose to continue tying DEI goals to incentives, while others may maintain, adapt or create goals in ways that are not tied to compensation.
Jones’ stance is for companies to clearly communicate any decisions and adjustments — both publicly and internally.
“Demonstrate [the importance of DEI], even if you take it out of incentive plans,” she said. “Make sure your actions show where you still want to put energy.”
Non-Compensation Approaches to DEI
Visible passion and buy-in for DEI and ESG goals may be a better driver of success than a link to compensation, said Brian Levine, a pay equity leader and partner at Merit Analytics Group.
“The focus on DEI will continue to be strong and progress will continue to be made,” he said. “[That is so] not because all believe DEI represents a competitive advantage, although many do, but because investors are increasingly demanding data in equity achievement, for example, and the brand risk associated with not disclosing [at all], or not disclosing favorable numbers, is a driver of executive focus.”
Jones recommended employers support and promote employee resource groups, hold informal events that discuss DEI and spotlight diverse presenters and viewpoints, and approach leadership strategically.
“If you’re promoting people who are known for building diverse teams and inclusive environments, that sends a really important signal,” she said. “When you train people about leadership, is the topic of building diverse and inclusive teams and fostering belonging part of that?”
Releasing diversity data is essentially standard practice today, said Meredith Benton, principal and founder with Whistle Stop Capital and program manager for nonprofit As You Sow’s workplace equity program.
Benton noted company boards and investors will continue to pay attention to DEI and ESG measures — whether the goals are explicit or implicit, and tied to compensation or not.
Setting Good Goals and Tracking Effectively
Benton said a study by Whistle Stop and As You Sow demonstrated corporate “diversity benefit.”
“The more diverse management was — as in, the fewer white males you have in management — the better financial performance was correlated to be,” Benton said. “That included return on equity, return on invested capital, 10-year share price — factors that are all very important to investors in terms of how they assess companies, and very important to companies in terms of how they assess themselves, their revenue and growth.”
Both Jones and Levine agreed: The way diversity-related goals are set and measured likely will, and should, continue to evolve.
Moving forward, goals may focus more on internal equity. “Quotas create legal risks and just don’t make sense,” Levine said.
Jones said companies should set DEI goals that are achievable and attached to an actionable plan, but added they should still be bold and positioned to create change.
“If you don’t do a good job with goal-setting in DEI, you may not see the needle move at all,” she said. “As we get to this next stage, which may be about measuring inclusion and belonging, make sure you have something to strive for — not just a check-the-box kind of thing, but something that’s actually meaningful.”
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