Diversity, equity, and inclusion (DEI) is one of the key issues facing industries today. Increasing numbers of companies are actively seeking ways to create a more level playing field within their own organizations when it comes to pay and opportunity with particular attention being paid to the role equity compensation can play in promoting fairness in the workplace.
How companies can look to do so and potential pitfalls to avoid along the way were among the topics discussed on the most recent episode of the J.P. Morgan Workplace Solutions Prosperity at Work podcast, in which hosts Chris Dohrmann, Executive Director, Strategic Partnerships, and Lauren Jenkins, Head of Executive Participant Servicing had a wide-ranging conversation with DEI expert Stefan Gaertner, Partner and Global People Analytics Lead with professional services specialists Aon.
With close to thirty years of experience in the field of human resource management, Stefan has had a ringside seat for the changes to how companies have come to understand and respond to conscious/unconscious bias and discrimination in the workplace.
According to Stefan, one of the keys to making headway on these matters is to appreciate the value of objective data and how that can inform a company’s approach to DEI.
“Organizations I work with monitor their data very well. Most have really good data on gender and ethnicity, especially in the United States. The best-in-class use that data to monitor hiring, promotions, and performance management systems, and to make sure that all those systems are fair,” he said.
“It’s probably fair to say that my colleagues and I at Aon have access to the best data in the world when it comes to diversity and inclusion. This comes from the thousands of clients who send us compensation data, but also data on promotions, turnover, gender, and ethnicity. That assists me when I’m working directly with clients to support their diversity and inclusion initiatives. I’m very much fact driven, and I think that’s important.”
When asked which sectors tend to put the most time and effort into DEI initiatives, Stefan pointed to regulated industries such as life sciences and biopharma while also singling out those operating in long established industries that are prominent in the public consciousness.
“The financial industry comes to mind,” he elaborated. “Some of my clients there are doing a lot to make sure that they are seen as front runners. In general, larger organizations tend to be more concerned about diversity and inclusion. People pay more attention to them, so they have to be more careful.”
Beyond that, Stefan said the key consideration was less about any particular industry itself and more on the features of individual companies, specifically how committed a CEO and/or board is to taking DEI seriously.
When asked what company leadership should do at the outset if looking to make headway on their own situation, Stefan was unequivocal – be fact-driven.
“The first thing that you can do when considering a diversity and inclusion program is to look at your data. That is super important. Without the facts, you will act but not in a very informed way,” he said.
Once armed with factual data, companies can look at how they fare on, for example, the gender pay gap and representation at executive level.
“When you look at the data you always learn a few things. On pay, if you take average pay of men and women in every organization, you usually see that men make about 22% more than women. But when you analyze the data so that you only compare men and women in the same job at the same level, you will see that the gap is much smaller. We call that the adjusted pay gap, but it’s still there,” he said, before noting that this figure is about 2% in life sciences and approximately 3% in the tech sector and asset management.
“Another thing you can learn by looking at your data,” he continued, “is how you fare on representation. By that I mean you can see how many women you employ as a proportion of your organization and at what levels you employ them.”
He noted that the gender gap at executive level remains massively problematic despite the broad progress seen on DEI in recent times.
“The gender representation gap on executive levels is getting smaller, but very, very slowly. If we continue at the current pace, we will have gender parity when it comes to employment and executive levels in about 80 or 90 years,” he said.
Despite that, he urged companies who might be eager to redress this imbalance in the immediate short-term to proceed with caution.
“If you’re a company where women account for just 20% of executives, and you decide that you’re going to get it up to 50% in three years, my advice would be to not do that, as it may backfire. With that kind of schedule, you may not be giving yourself enough time. Instead, do a little bit of projecting into the future to make sure your targets are reasonable. Recently, I worked with a client that was chasing highly ambitious targets for a few years, and now they must pedal back. They have to tell their shareholders that they are not achieving those targets. You don’t want to find yourself in that situation,” he said.
As to what role employee equity compensation can play in DEI programs, Stefan agreed some features might make it a more flexible tool in this area than large scale non-equity based compensation. Companies may have the ability to adjust vesting, the amount granted, or even performance targets with more frequency than with other forms of compensation.
“We typically recommend our clients to look at pay equity across all compensation tools. That’s base, that’s bonus, that’s equity, and whatever other components you might have in your compensation system. When it comes to equity, there are a handful of things that make pay equity analysis a little more complicated. The first thing is that there are lots of ways to present equity. You can use restricted shares, stock options, ongoing grants, new hire grants, spot grants and so forth. So, each of these components would have to be modeled and understood separately, which adds to the complexity,” he said.
Stefan also highlighted issues around the value of awards.
“If you grant restricted stock, the value could be different the very next day. So, what we typically recommend is to evaluate equity at the value it had on the day you provided employees with that equity component. It adds to the complexity of the analysis,” he said.
He also pointed to the need to put in place clear rules on eligibility.
“There’s nothing in the law that requires you to pay the same amount of equity to everybody, but you must make sure that people who are similarly situated are treated the same based on their performance. That’s another factor that makes equity complicated because you have to put in all these different eligibility rules.”
Another point to consider, according to Stefan, is how straightforward or otherwise it will be to deal with points of action that may arise when working with straight salary versus equity compensation.
“If you see that there’s a pay differential when it comes to salaries or base pay, you provide women or the relevant minority with pay adjustments, or in rare cases where men make less than women, you provide these pay adjustments to men, and that basically remedies the problem going forward. When it comes to equity, you can’t really go six months back and provide refresher plans. The value is different. The vesting time would be different,” he said.
So, how to deploy employee equity compensation as part of a DEI initiative while addressing the complexities highlighted by Stefan? “
There are two remedy options, neither of which is particularly great. The first option is to provide more training to people who provide equity. Of course, training has a very indirect impact on fairness, so that’s why that one isn’t perfect. The second option is taking discretion away from people so that equity is entirely rule based. As you can imagine, for example, when it comes to new hire equity, that could be problematic, because new hire equity sometimes is used to attract people that otherwise you probably wouldn’t be able to bring in. So, these two solutions are not perfect. With all that said, we conduct equity analysis for equity pay with about 50% of clients. So, it’s very common today to cover equity when you look at pay fairness, partly because it makes up such a big part of a compensation system, especially in the financial industry and in the technology industry,” he said.
To listen to the full interview, click here.
What next?
At J.P. Morgan Workplace Solutions we work with companies from around the world every day to help them bring their equity compensation and reward strategies to life. Our tech and service-based offering was created to empower employees to easily navigate their workplace incentives with confidence.
Get in touch to speak to one of our customer success managers about how we could help you.
Please Note: This publication contains general information only and J.P. Morgan Workplace Solutions is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. J.P. Morgan Workplace Solutions’ Insights is not a substitute for professional advice and should not be used as such. J.P. Morgan Workplace Solutions does not assume any liability for reliance on the information provided herein.
