Tying Diversity to Compensation

As CEO of Sodexo, Michel Landel leads a company that ranks as the world’s 18th largest employer with 419,000 employees in 80 countries. As a member of the executive team, he actively champions the diversity and inclusion of those 419,000 employees — or else risks losing up to 15 percent of his bonus compensation.

“We have a very vigorous, robust diversity scorecard where we look at recruiting, retention and promotion of women and minorities, as well as sort of qualitative behavior,” said Rohini Anand, global chief diversity officer at Sodexo.

The scorecard, which accounts for 15 percent of the executive team’s bonus and between 10 and 15 percent of manager bonuses, rates company leaders’ diversity efforts on a series of metrics such as the number of diverse employees hired and how active executives and managers are in the mentorship and sponsorship of women and minorities. First implemented in 2003, this link between compensation and inclusion goals has been the driving force behind improving diversity at the food services and facilities management company.

“It’s not just a numeric target,” Anand said. “We want to change the culture, the behavior, so it becomes more ingrained; we automatically do what we have to do to get to the outcome. It’s a lot of education; it’s a lot of communication; it’s a lot of awareness.”

Although the scorecard itself is fairly complex, broken down into sections and recalibrated on a yearly basis to best reflect increasingly ambitious goals, the reasoning behind it is simple: By tying diversity results to executive earnings, Sodexo is holding its leaders accountable for achieving diversity and inclusion goals.

“What’s measured gets done,” said Deborah Tsai-Munster, executive director of Diversity Best Practices. “When you tie it to the compensation, managers take diversity and inclusion much more seriously. They treat it more as a business objective, as opposed to a nice-to-have.”

Although organizations are reluctant to embrace diversity-based compensation — or, at the very least, are reluctant to discuss such matters publicly — diversity thought leaders like Tsai-Munster are promoting it as one of the top ways to ensure strategic diversity and inclusion success. When Google Inc., Facebook Inc. and other tech giants revealed subpar workforce diversity statistics in the summer of 2014, the resulting wave of think pieces proposing solutions for Silicon Valley’s diversity problem included calls to tie executive compensation to diversity.

“If there’s no incentive, there’s no accountability,” Anand said. “There’s no incentive to get those outcomes.”

Accountability certainly seems to be lacking. With each reveal that summer, tech executives were overwhelmingly apologetic, making promises to improve their numbers of female and minority employees. In Facebook’s 2014 release, global head of diversity Maxine Williams wrote, “We have a long way to go, but we’re absolutely committed to achieving greater diversity at Facebook an across the industry.”

Yet, in 2015, the major tech companies have made little, if any, improvement. Facebook’s diversity update this summer showed only a 1 percent increase in female employees, while Latino and black employees remained stagnant at 4 and 2 percent of the employee population, respectively. Similarly, Google’s 2015 numbers showed only a 1 percent increase in mixed race employees, while gender and other minority populations were unchanged.

The only company that seems to have changed in the last year is Intel Corp., which committed $300 million to its diversity efforts in January, with CEO Brian Krzanich promising to tie executive pay to the company’s progress achieving diversity goals.

The Oregonian reported in July that 41 percent of Intel’s 2015 hires came from underrepresented groups, while minorities and women made up 17 and 33 percent of new senior executives in the first quarter, respectively.

Additionally, Intel has promised a bonus of $4,000 for employees who refer a woman, minority or veteran job candidate who is ultimately hired — double the standard referral bonus.

“Intel is a great example,” Tsai-Munster said. “They’ve just invested a lot of money into diversity and inclusion, and they’re running it more like a business.”

Looking at companies like Sodexo or Intel, it is apparent that making a real, monetary commitment to diversity and inclusion is an effective way to achieve diversity goals. However, Doug Harris, CEO of consulting firm KG Diversity, advises caution when implementing diversity-based compensation. To be successful, accountability measures have to mean something in a business context. “One of the ways to create meaningful accountability is to attach compensation to success or to barriers,” he said. “When you do it and how you do it is just as important as doing it.”

Harris said before a company can make diversity goals part of compensation, it must first establish a multifaceted diversity and inclusion strategy, one that will foster a more inclusive culture and help organizations to retain diverse employees once they are hired. Further, once compensation is factored into that strategy, Harris said it should be based on sustainable metrics such as inclusive behaviors, as opposed to just increasing the numbers of underrepresented populations — which can create a mindset of quotas to fill.

‘What’s measured gets done. When you tie it to the compensation, managers take diversity and inclusion much more seriously. They treat it more as a business objective, as opposed to a nice-to-have.’

— Deborah Tsai-Munster, executive director, Diversity Best Practices

“It’s important to have the right goals, to ensure the right behavior is being implemented,” he said. “Sometimes people will set goals like, ‘You have to hire two of those.’ They’ll hire two people, but they might not be that qualified, or they might not be the best candidates — they’re just doing it for the compensation. Then they give the person a hard time, and soon after they’re leaving. That’s not sustainable change.”

However, Sharon Jones, president and CEO of Jones Diversity, said that having at least some numerical demographic metrics is necessary to achieve real results; this is business, and people are used to numbers. “Diversity and inclusion is no different from any other business strategy; it should have numbers attached to it,” she said. “Those numbers aren’t quotas any more than any sales goal is a quota. It’s a goal. People get bonuses and other types of compensation based on achievement of important company goals.”

At Sodexo, Anand said 60 percent of the diversity scorecard is focused on hard numbers: how many women and minorities were hired, promoted and retained. The other 40 percent is focused on promoting inclusive behaviors. “We want our leaders to focus on things like mentoring, things like retaining high-potential employees,” she said.

Although there was some initial backlash when the scorecard was first rolled out, with employee confusion over whether or not it was just creating quotas, Anand said there has since been education and awareness training to ensure all employees understand what is expected of them in the diversity space.

And all employees are expected to contribute to diversity efforts. While only executives and managers have bonuses tied to diversity and inclusion goals, individual employees are also scored in diversity competency as part of their performance evaluations. “It’s been very effective,” Anand said. “We’ve had double digit growth in representation of women and minorities.”

She said employee engagement in diversity and inclusion initiatives has increased since it became a part of performance evaluations and bonuses, with the engagement rate for women and minorities increasing the most.

Sodexo’s executive team is now gender-balanced, with women holding six of 14 positions, and its progress in the past decade has earned it a spot in the top five of Diversity Inc.’s Top 50 Companies for Diversity six years running.

“We’ve been a catalyst for diversity,” Anand said. “It helped us achieve a culture change; it’s become a part of who we are, a part of our fabric.”

With an inclusive culture already established, Anand said the company is now focused on getting more women in operational roles, and the scorecard has been adjusted to reflect that goal. “We’ve calibrated our scorecard to be sure to focus on where our biggest challenges are,” Anand said. “Each company has to decide where they need to focus, and have clear metrics and accountability.”

Tsai-Munstersaid companies should create diversity metrics that are aligned to its business strategy so executives can clearly see how having diversity can positively support business. In addition to straightforward demographic numbers, she said it is helpful to measure diversity in regards to its impact on innovation, community outreach and business development.

“You can measure it in terms of innovation, or do you have diverse teams working on innovative products and solutions?” Tsai-Munstersaid. “You can measure talent development, or how many of your diverse talent have development plans and are included in your succession planning and in your pipeline? How many are getting opportunities to move up, down or laterally across your organization?”

Once established, these metrics should always be tied to compensation in order to ensure the best results. “You should be treating it like any other business imperative,” Tsai-Munster said. “If you are working with a business leader, you don’t say, ‘Hey, I really want you to improve your sales revenue, and if you do that, great, I’ll give you a pat on the back.’ You compensate them for their success.”

However, Tsai-Munster said diversity-based compensation cannot be thrust on employees out of nowhere. Implementation needs to be rolled out slowly, giving executives and managers time to become familiar with the metrics and figure out what they need to do to promote diversity and inclusion.

“When you roll out diversity metrics right away and immediately tie it to compensation, that’s a tougher buy-in process,” she said. “To manage the change in implementing D&I metrics and tying it to compensation, it should be implemented over a period of time. Not too long, obviously, but enough time that people understand the baseline metrics and what they need to do in order to improve them.”

In many cases, tying diversity to compensation may not be necessary. KG Diversity’s Harris said it might be more of a worst-case scenario for some organizations, when previous and current efforts to improve diversity metrics are not working and drastic measures necessary. “You don’t necessarily need compensation,” he said. “You just need to make sure it’s important and there’s meaningful accountability around it.”

Employers can ensure accountability by making diversity and inclusion efforts a part of employee evaluations, or a factor when they are considered for promotions. Harris said even in situations where he does recommend that clients tie compensation to diversity metrics, he limits it to about 5 percent of bonus salary — not the 15 percent Sodexo executives have affected by diversity and inclusion efforts. “With the money these individuals bring in, 5 percent of their bonus is still a big number.”

By tying diversity results to compensation — or to any other means of accountability — companies can effectively send the message that diversity is important, and that it should be seen as valuable from a business standpoint.

“People are busy, people have a lot on their plate, and most of the time we decide what is important based on what will get me promoted, what will I be held accountable for,” Harris said. “It’s a strong message that the company is very serious about the effort and wants to produce results in this arena. Because of that you can get a real, sincere effort towards success.”