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I was reflecting on recent Black lives matter events and how HR and total rewards professionals could make a difference and ensure that we don’t find ourselves in the same situation a few years from now.
After recent demonstrations, most major companies committed (or recommitted) to racial equity, with a number of these companies promising changes to hire and promote Black employees. While this reaction is commendable, the history of these issues tell us that companies have a long way to go.
A recent Bloomberg article noted that, “Black people, who make up 13.4% of the U.S. population, now account for just 3.2% of executive or senior leadership roles, according to a 2019 study of full-time white-collar workers by the Center for Talent Innovation.” The article goes on to state that these results are in spite of companies pledging commitment to diversity in the past, spending billions of dollars recruiting people of color, hiring diversity officers and running ads touting their dedication to inclusivity.
Total rewards professionals can help companies achieve their goals by linking incentives with diversity and inclusion goals. I think unless we are not likely to see significant changes unless we tie compensation to D&I goals. We need to hold companies and senior leaders accountable for their D&I commitments through incentive programs.
A few companies include D&I goals in their incentive programs, but we do not have much visibility on the rigor of these goals, because companies do not disclose target and actual results for various reasons. As a result of recent events, some companies have stated D&I goals publicly.
For example, a technology company recently announced that it will increase minority representation by 30% over the next few years. I would argue that this is not a rigorous goal considering that the company’s current leadership is 2.6% Black — a 30% increase over the next five years would take it to about 3.4%.
My guess is that a number of companies using D&I goals — either under an incentive plan or stand-alone goals with no incentive implications — are setting similar easy-to-hit goals or goals that would not result in significant progress over the next three to five years. We need companies to set goals similar to Wells Fargo’s goals: The bank has committed to increasing the Black leadership from 6% to 12% over the next five years. Another great example is Estee Lauder, which is planning to “reach population parity of Black employees across all levels of the organization.”
Total rewards professionals could design programs that tie incentives to D&I goals and then work with the rest of the company to set meaningful and stretch goals. These goals, to be realistic, should consider various factors, such as Blacks as a percentage of total populations, percentage of employable population that is Black, etc.
For example, a technology company could set the goal that X% of annual college hires would be Black. Alternatively, the company could say that it plans to hire Y% of graduating Black software engineers. These X% or Y% goals need to be aggressive to catch up from past failures and get to a desired level over the next five to 10 years.
I am afraid the current approach of commitment with no consequences wouldn’t get us to the desired level over the next 10 to 20 years. Of course, similar goal-setting processes should also apply to women and other minorities who are underrepresented at the leadership level.
We do not need a quota system and we do need to be mindful of companies’ ultimate goal to create long-term shareholder value. I don’t want any company to hire subpar talent to reach its D&I goals. That is why I am suggesting the goals should be set considering various factors, such as population size, number of employable people available, etc.
Companies should put pressure on universities and other establishments to produce the desired candidate pool. For example, technology companies should push universities to enroll more minorities to create the talent pool and consider setting their D&I goals based on the number of Black students graduating each year with a desired degree.
The board of directors should do their part by challenging management to set stretch goals. The board should look at D&I goals in the same manner the board thinks about market share of products. If a company has a small share of its market, the board is likely to push management to set goals that are very aggressive and is not likely to be happy if the improvement is marginal even though the goal looks aggressive on a growth rate basis, because the starting point was very low.
Total rewards professionals should consider both short- and long-term incentive programs to add D&I goals since these goals are likely to be long-term in nature. This brings me to disclosure and role of shareholders. Generally, I am not in favor of companies disclosing long-term goals at the start of a performance cycle. However, considering the importance of these goals and to ensure rigor of goals, companies should disclose goals at the start of a performance cycle and shareholders should push companies for such disclosures.
Some shareholders tried to address the D&I issue by arguing that companies discriminate against minorities and women when determining compensation. I would argue that these shareholders’ other main issue was representation at the senior level and these shareholders used the compensation route to make their point because compensation gets easy attention from media and others.
We need large institutional shareholders to put pressure on companies to disclose more D&I data, including future goals. If large institutional shareholders ask companies to do something, it would be very difficult for companies not to comply. I understand that these institutional shareholders themselves are large companies and face the same D&I issues. These large shareholders should acknowledge the issues and come up with common grounds to address the issue.
Some may argue that incentive plans should include goals that support a company’s business strategy. This is a fair point, but it should not preclude most companies from using D&I goals under incentive plans because most of these companies have concluded that a diverse team is key to the achievement of business goals.
In conclusion, if we are going to see progress in this field over the next three to five years, we need rigorous and transparent D&I goals and we need to tie executives’ incentives to these goals to hold them accountable.
About the Author
Anil Agarwal is a multifaceted total rewards professional with broad industry and consulting experience.