WorldatWork has designated October as “Workplace Equity Month.” To shine the spotlight on issues of pay equity, diversity and inclusion, and social justice, Workspan Daily will be publishing various articles throughout the month on related topics. Visit our Workplace Equity page for more content on this critical area of total rewards.
Diversity, equity and inclusion (DEI) issues are in the spotlight — and rightly so. We’ve seen large and leading-edge companies track key metrics for several years now, and we increasingly see DEI becoming a central priority for C-suites and boards of directors across the world of commerce.
DEI isn’t just a trend. It’s a business advantage, with research showing that more diverse companies deliver above-average profitability. What’s more, there’s a body of evidence to support that diverse teams generate better ideas and make better decisions, and that organizations with outstanding DEI attract stronger talent.
Although diversity, equity and inclusion are often used in tandem, they represent three distinct concepts:
- Diversity refers to a balanced representation of gender, ethnicity, age, sexual orientation, and other factors (e.g., people with disabilities, veterans, religious groups) at all levels of an organization.
- Equity refers to fairness of practices, especially equal pay for equal work, which is tested with statistical models that assess whether pay differences are linked to valid factors like role or seniority versus gender or race. For more on this topic, see our article from the June/July 2020 issue of Workspan.
- Inclusion refers to an environment where diverse employees feel that they belong, are valued and can make an impact.
With that, let’s unpack what the compensation committee or board of directors will likely need to know about DEI. From our work with companies of all sizes in a range of industries, here are the five biggest questions we see, which compensation teams should answer in their materials for the board:
1. What are our key DEI metrics, what do they represent and how are we performing?
The answer to this should be in every DEI executive summary presented to the board, and should be as precise and specific as possible. It’s important that companies set goals that are time bound (preferably three to five years — near enough to have a line of sight and take priority, but long enough for the initiatives implemented today to take hold). It’s also important to tie these longer-term goals with leading indicators of your current position, like incoming talent pipeline, attrition rates by gender and ethnicity, pay equity and promotion equity.
2. How have past trends led to our current state, and what’s the pathway to the future state?
This is the most data-intensive section of a board DEI report. Here, you’ll analyze and visualize the historical data to bring out the trends, then use these observations to set goals that are achievable and also reflect the depth of the challenge. One trap to avoid: Steer clear of any discussion that comes across as an excuse. Instead, communicate the challenge and chart a strategic course that points the way to achieving the future goal.
3. What initiatives are we undertaking now to achieve our future goals?
Answering this question in board materials involves listing the specific initiatives (or types of initiatives) that are currently in flight. Add the targeted results of the initiative and how progress is currently tracking. For structure, we like to see companies break down the initiatives by categories like:
- Talent attraction and recruiting
- Employee engagement and inclusion
- Pay equity
- Talent development and retention
- Community involvement
- Customer and supplier programs
4. What are our competitors (and the broader market) doing and how do we compare?
The most useful way to answer this question is to share the goals that your market competitors are choosing to emphasize and the metrics they’re using to evaluate them. However, hard data on peer DEI practices is limited — the ones that exist mostly come from companies’ corporate social responsibility reports and websites, which vary in quality and content. So, try to include qualitative analysis from your network and advisors.
5. What are our shareholders and other stakeholders saying?
As a key feature of the environmental, social and governance (ESG) landscape, DEI issues have been gaining momentum among institutional investors — a trend that seems likely to continue. But shareholders aren’t the only constituency that matters. We suggest framing the answer to this question from at least four perspectives:
- What shareholders are saying in your recurring outreach discussions
- What third-party agencies like the Sustainability Accounting Standards Board are reporting
- Employee feedback via regular and thoughtful surveying
- Community relations from informal and formal channels
Key DEI Metrics and Analytics
As you may have noticed, metrics and analytics are essential to answering all of these questions about DEI. They also help lay the foundation for more advanced insights and strategies. Because categories like sexual orientation, disability status and religion typically lack readily available data, the most common diversity variables are gender and race. However, these two can yield plenty of insight. To start with, consider sharing the following:
Summary representation statistics. Chart this out on an aggregate level, and from there, you can drill down by business group, division, salary band and/or job title, region or geography, and so on.
Hires and exits. Simple summary statistics aren’t static over time. The employee base is constantly changing, and those changes may or may not be random. New hires and terminations over the past three, six and 12 months can help to isolate any representation problems that may arise. We call these analytics ‘pipeline motion pictures,’ or PMPs, because they tell a story about the changes taking place in the employee pipeline.
Promotion equity. Paired with the PMP analysis, promotion equity analytics look at progression and mobility among tenured employees. If two people start at the same time with equal qualifications and have equal performance, they should get promoted at roughly the same time irrespective of gender or ethnicity. If this isn’t the case, a promotion equity metric can highlight which part of the human capital pipeline is tripping up career mobility.
As board-level ESG and DEI reviews become more routine, management needs to review the metrics more frequently to stay on top of changes and trends, just like any other key business metric. Automation is key to efficiently create monthly reports and dashboards that reveal trends and potential problems early on. In short, the adage “you can’t manage what you don’t measure” rings truer than ever for achieving diversity, equity and inclusion goals.
About the Authors
David Outlaw is a practice leader for Equity Methods’ valuation and HR advisory groups.
Saswati Sen is a consultant in the valuation and HR advisory practices at Equity Methods.