Many DEI experts believe that linking company-wide performance on DEI goals with executive incentive plans is a best practice for leading organizations. Measuring and rewarding DEI efforts to ensure that they get accomplished is imperative for “best-in-class” status. Since DEI is as much a culture change as it is a performance expectation, linking performance to the executive incentive plan prematurely could do more harm than good. Determining how DEI goals should be accomplished is just as, if not more, important than simply what is to be accomplished.
Consider the following five guidelines before linking DEI performance to your executive incentive plans.
First – Establish a Comprehensive DEI Strategy with Clear and measurable Expectations
Most executive incentive plans are built around a balanced scorecard concept with traditional dimensions such as financial performance, customer/market impact, workforce excellence, workplace culture, and quality. DEI strategy implementation has the potential to impact all of an organization’s strategic pillars to some degree.
The following diagram depicts a strategic structure that provides clarity and measurability for short-term and long-term success and sustainability.
Second – Establish a Performance Index™ score that Measures Each Strategic Driver
Using the DEI strategy structure, organizations can create a Performance Index™ Score for each strategic driver that is based on the combined performance of associated metrics and action plans. Utilizing technology, the Performance Index™ Scores can be aggregated for each goal, each pillar, and the total strategy to reflect how well the organization is performing on its DEI strategy. Assuming that the content of the DEI strategy is robust and challenging, the Performance Index™ Score can be an excellent proxy for incentive plan performance relative to DEI.
Third – Measure and Monitor DEI Implementation Performance Quarterly
The integration of DEI into your organization’s culture and incentive plans must be approached with deliberate communication and change management considerations to increase “buy-in” and commitment to DEI. Certainly, engaging key executives in the process and leveraging the expertise of an executive compensation consultant will ensure that this alignment of DEI performance and incentive compensation is properly designed. Some organizations may choose to implement, measure, and monitor performance for a year before implementing the revised compensation plan. This approach allows executives to become familiar with this higher level of accountability for DEI as well as gain experience on how to successfully drive DEI performance. Quarterly updates and reviews position your organization to assess how well it is performing against its DEI strategy and performance targets. Your organization could determine that it wants to achieve results that are above a 90% Performance Index™ Score. The quarterly DEI performance can be reviewed by the DEI Department, the DEI Council, the Executive Leadership team, or possibly the HR Committee of the Board to avoid year-end surprises.
Fourth – Establish Incentive Plan Performance Thresholds and Targets
Some organizations have found it valuable to utilize a Performance Index™ score as the basis for monitoring DEI performance. The Performance Index™ score combines the metric and action plan performances. To gain the most benefit from the Performance Index™ score, the following key decisions should be made at the beginning of each plan year:
- Determine whether the DEI incentive portion should be in addition to or a carve-out from other existing incentive plan factors, e.g., financial (30%), customers (30%), organization capability (20%), and business operations (20%).
- Establish the expected performance levels for incentive compensation purposes.
Determine the minimum (threshold) performance for incentive plan payout purposes.
Determine the expected or target performance.
Determine the level of performance that will be considered as exceptional.
Fifth – Leverage Technology to Track and Report DEI Performance throughout the Year
Monitoring DEI strategy is easy with our Strategy Lighthouse™ technology that provides a platform to update, monitor and share DEI progress. With input from your DEI Office and DEI strategic driver owners, this application will monitor and report on your DEI objectives, goals, strategic drivers, action plans, plan owners, and budgets on a real-time basis. The application calculates the DEI Performance Index™ score as input for Executive Incentive plans and provides visibility and accountability at the most important levels of your organization.
About the Author: Haven Cockerham is a DEI strategic leader with industry experience as Chief Human Resources Officer for DTE Energy and RR Donnelley and as a Senior HR Executive at General Motors. His corporate board experience includes chairing the HR and Compensation Committees for BMO Harris Financial and Presence Health System in Chicago. He also served on the Compensation Committee of The Bartech Group.