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Diversity, equity, and inclusion (DE&I) figures into an increasing number of executive pay programs. But these programs typically are annual bonuses rather than long-term incentives, which lessens their impact.
Aalap Shah, managing director of Pearl Meyer, a compensation advisory firm, said, "There's been a significant uptick in incentive plans tied to diversity and incentive goals. Larger companies are leading the way."
But he noted that "the actual impact on pay is not that significant" because most of the incentives are in annual programs rather than long-term incentives, such as stock options.
"A metric like diversity belongs in long-term programs more than short-term incentives," Shah said. If included in long-term incentives, concentrated DE&I efforts could be made in incremental steps over three, five, or even 10 years, rather than "one-and-done" quick fixes that may not last.
Some companies find it difficult to measure performance and disclose achievement with data that in some cases is considered sensitive. Others do not include DE&I in their incentive plans because it is something that is always expected to be considered by all executives, not something to specifically incentivize. Several organizations cite the stigma associated with using a quota as the reason for avoiding quantifiable metrics.
As for those fearing claims of reverse discrimination, Shah dismissed this concern, saying companies "wouldn't overcorrect on diversity."
He said, "There's a swell of interest in having companies more accountable to diversity. Now institutional shareholders are moving the needle."