Levelling the workforce playing field

Lauren Jenkins: You’re listening to Prosperity at Work from JP Morgan Workplace Solutions, the podcast all about equity compensation, financial well-being, and more. I’m Lauren Jenkins, head of executive participant servicing at Workplace Solutions.

Chris Dohrmann: And I’m Chris Dohrmann, executive director of strategic partnerships at Workplace Solutions. So, Lauren, what are we talking about today?

Lauren Jenkins: Well, Chris, I’m gonna throw something at you which can feel like a buzzword or potentially a corporate box ticking exercise, but it’s actually vital to the interest of the modern workforce and the success of many businesses. So today, we’re talking about diversity, equity, and inclusion or DEI.

Chris Dohrmann: You’re right. DEI has a major impact on the well-being of companies and employees alike, as well as just being the right thing to do from a human perspective. So let’s dive in.

Lauren Jenkins: All right. Today, we are joined by the man who has maybe the best dataset on DEI in the US right now, Stefan Gaertner, partner and global people analytics lead at Aon based in Los Angeles. Stefan, welcome to the show.

Stefan Gaertner: Thank you, Lauren. Thank you for having me.

Chris Dohrmann: First, let’s get some context. Tell us a little bit about Aon, your role in the business, and what gives you a unique perspective on DE&I.

Stefan Gaertner: So I came to America. You’re probably about my accent. Originally, I’m from Germany. I came to America almost 30 years ago to get a PhD in Human Resource Management. A t Aon, my role as a people analytics lead is basically provide clients advice on people analytics, but also to look after that great data that AON. The data that AON has comes from 1,000s of our clients who send us compensation data, but also data on promotions, turnover, gender, ethnicity. So I see a lot of that information, and of course, I use some of that information to work directly with clients to support their diversity and inclusion initiative. I have worked in this topic for a long time, but I’m also approaching it from a very factual basis. What is the current situation? How does it impact the business? How does it impact employees and so forth? I think that’s really my unique point of view, the point of view that I can bring to the table. Yeah,

Lauren Jenkins: That’s wonderful. So you must have some great data on what the leading companies are doing from a dei perspective. Can you share some headlines?

Stefan Gaertner: So when it comes to human capital, most organizations have really good data on gender and ethnicity, especially in the United States, and the best in class organizations, they use their data to monitor hiring, to monitor promotions, to monitor performance management systems, to make sure that all of these systems are fair. That’s number one. Most of the leading organizations, they also do a pretty thorough job monitoring pay equity. Pay Equity is basically all about are we paying equally for men and women and employees with different ethnic backgrounds who do similar or identical work? So they have big programs in place to monitor and improve pay equity in an ongoing basis, that’s number two. And number three is basically all about communications. So you can’t really have a diverse diversity and inclusion program without paying much attention to how you talk to your workforce. And communication includes things like making sure that the language that you’re using on your website is not biased towards one gender or one ethnicity. Most organizations are thinking about disclosures. They’re thinking about being more open to the world about what they’re doing when it comes to diversity and inclusion. So internal communications and external communications. And the best organizations also, they walk the extra mile in making sure that employees feel that they belong. So they end up forming what is called employee resource groups, or infinity groups. They’re engaging with these groups. They’re supporting people of different ethnic backgrounds to be successful within the organizations. So if I were to pick three, those would be the main topics.

Lauren Jenkins: And are there any specific sectors or industries that stand out in terms of really embracing those things that you’ve mentioned?

Stefan Gaertner: Yeah, there are maybe a couple that I would point out regulated industries or industries that basically draw the attention of the government, and they usually are a little bit ahead of the curve, and that would be, for example, life sciences and biopharma, because their reimbursement depends on money that often comes from the government, so they are very careful about diversity solutions. And organizations that draw a lot of attention to themselves because they are industries that are old and very well known. and I would think about the financial industry there. Some of my clients in the financial industries are doing a lot to make sure that they are seen as front runners in that space. But beyond these sectors, I would think that, I would say that the biggest differences are not really driven by industry, but by all by features of organizations within industries. So in every industry, I can basically point to organizations that do it really well and others that limp behind and two factors that really come to mind are, number one, the price so larger organizations tend to be more concerned about diversity and inclusion, because, yeah I get it, people pay more attention to them, so they have to be more careful. And the other one is really almost random. It’s about who is your CEO, who is on your board, who is interested in this kind of topic, did they get fresh out from their shareholders, who are other interest groups to do more on diversity and inclusion.

Chris Dohrmann: And not to dwell on it, because I think you’ve given a very positive picture of DE&I and what people are doing, but I do want to balance it, because I think the audience can learn from the weak points. What are the weak points and are you seeing many companies struggle or just plain not address DE&I.

Stefan Gaertner: Arguably, many of you is a little bit little bit lopsided because organizations that talk to me, almost by definition, hear a little bit more about DE&I than others. So but even when I talk to those organizations, I would say that one weakness of these programs is that they really only focus on the symptoms and that they don’t really go into the root causes. So it’s one way to think about when you say, hey, we have a pay gap. Let’s provide employees with pay adjustments. That’s one way to fix it. A better way would be, actually, to go back to the root causes. Why do we have that pay gap to begin with? Similarly, with organizations that realize that they don’t have enough women in executive ranks, they go in and basically go through a program that takes one or two years and hire a few women to balance that out, as opposed to really going back to the root causes and saying, why, how did this happen to begin? So I think that’s really a shortcoming of these programs. And then the other thing, and that’s kind of curious, I do see when I work with clients directly, that they’re making a lot of progress when it comes to their pay gap. I’ll share some data, maps data, but I can tell you that if you work for an organization for three, four years, the beginning, they might have 3% or 4% gender pay gap you see how that data gets down over time. But it’s a lot harder to achieve progress when it comes to the employment representation. So it’s a lot harder to basically achieve a 50/50, parity ratio in the executive level between men and women. So as a result, and that’s really interesting to me, because we look at the industry data, we’re basically seeing two snakes – a) the gender pay gap, I’ve been monitoring that for a little more than a decade now, is pretty stubbornly industry wide, at about 2% and it doesn’t seem to get less. And the gender representation gap on executive levels, it’s getting smaller, but very, very slowly. So, if we continue at that pace, we will probably have gender parity when it comes to employment at executive levels in about 80 to 90 years. So progress is there, but it’s really slow. When you look at the data from really from the level that I can look at the data.

Chris Dohrmann: What can we learn from the fact that you’re relating most of these corporations do a little bit of self-awareness check after they come to you to see where they are in the process. Is there anything that you can recommend that they do right off the bat?

Stefan Gaertner: The first thing that you can do when you really look into a diversity and inclusion program is to look at your data and that is super important. Without the facts, you will end up act but not in a very informed way. So if you want to look into the data, and maybe this is a good moment to share some of that, we basically see because of the data that we get from our clients what the state of the art is in diversity inclusions across industries. So I looked at data just yesterday across industries and that I picked life sciences, technology, and asset management. And when you look at the data, you basically learn a few things that our clients would probably learn too when they look at their own data. First, if you look naively at the gender pay gap, you basically look at our 20% to 22%.

Stefan Gaertner: Now what do I mean with naively? So if you take average pay of every man and woman in every organization, you basically see that men make about 22% more than women. Okay? But when you start really slicing and dicing the data, analyze it so that you only compare men and women with the same job within the same job level, you’ll see that the gap is much smaller. We call that the adjusted pay gap, but it’s still there. So among these industries that I just mentioned, life sciences is a little bit better about 2%, and tech and asset management is about 3%. So first of all, when you look at your data and your general pay gap for example makes to compare your number with those numbers to see if you’re basically in the ballpark with everybody else. By the way, when we look at that data, we also learn that Asians, they tend to make more than white employees across the industries to the tune of about 2%. Other races, Hispanic, African Americans, Pacific Islanders, they tend to make about 2% to 3% less than white employees.

Stefan Gaertner: It’s interesting how these results are quite consistent across these industries. So another thing that you learn, that you can learn by looking at your data, you can look at your representation. You can basically see how many women do we actually employ as a proportion to your organization and at what levels do we employ them. So if you look at these three industries that I just outlined, you do see some differences. Life sciences today, we basically see that they achieve gender parity when it comes to employment, the ratios are roughly 50/50. However, when you go to the executive level, you see that women really only make about 35% of the workforce there. So tech is a little bit worse and a little bit worse placed in there. So there you basically see that women make about 40% of the workforce and in executive branch that’s only about 30%.

Stefan Gaertner: So asset management among these three industries is behind a little bit. So the overall operational women in asset management is only 37% and within executive level is [0:12:40.7] ____. So if you’re an organization in these industries, look at your own numbers and then compare yourself and then start to set reasonable targets. Now, I’m not going to go into that too deep, but I have one cautionary story to tell you when it comes about targets, especially about representation targets. So if you are in an organization, let’s take the asset management number as an example, and you have 19% of executives being women and you then go, hey, we need to bring this to 50% in three years.

Stefan Gaertner: I worked for a company that set these kind of targets and I give the math, given their hiring, given their growth, there was no way they could possibly reach the target without actually starting to systematically lay off men. And that of course would be against the law. You can’t do that. So in other words, if you set targets, do a little bit of workforce clinic, do a little bit of looking into the future to make sure what’s reasonable. I’ve just now worked with a client that was chasing these kind of targets for a few years and now they have to pedal back.

Lauren Jenkins: Those sound like some great goals. What individuals within a company are typically involved in executing on those goals?

Stefan Gaertner: To drive the program and to make sure that everybody is aligned and disciplined, it is very, very important that the sponsorship goes as far up into the organization as possible. So, and I’m basically talking the CEO, I’m talking the executive team. They would basically have to sponsor and making sure that everybody understand that this is infact a business priority. So when it comes to setting the targets, however, human resources plays a very important role because human resources knows the data. Human resources can interpret the data and human resources can share the data. Anytime, of course when you work with diversity inclusion data, you also have to get the law department, the legal department very much involved because doing too much could be dangerous as much as doing too little. And the law department can really help provide the right context and it can even protect some of the analytics.

Stefan Gaertner: Beyond that, I think it’s really important to, almost to my earlier point to be clear as to the business impact as to what you’re doing. So setting diversity targets that are too aggressive can do a lot of damage, as I said earlier, through your reputation if you don’t achieve them. But it can also lead to unintended the consequences when you hire the wrong people and drive the wrong people decisions. So as a result, I would always include all sorts of business leaders and that includes finance to make sure whatever target is set are actually achievable. I mentioned HR and there’s another thing that is important here to consider. Beyond the targets, you also wanna be clear that what you’re trying to accomplish is consistent with your organizational culture. A very concrete example. So if you will historically basically hire executives from within, basically make sure that somebody is within your organization for 15, 20 years, really understand the culture before you promote them to executive ranks.

Stefan Gaertner: And quite a few organizations are doing it that way, if that’s what your culture is, you really have to be even more careful setting goals because you don’t wanna put women into a role, into a position where you hire them from the outside against what is typically your policy or when you promote them too quickly because at that point you just set them up for failure. So as a result you really wanna also include people who understand the culture really well and were able to vet what you’re doing, making sure that it’s consistent with who you are as an organization. So that’s really it. And at the end of the day, it means that DE&I is not just an exercise that is being driven by HR or legal or anybody else. It has to be something that becomes part of the fabric of the organization and you have to really include as many people as possible.

Chris Dohrmann: Maybe as my last question here in this section is to ask about something Lauren and I know quite well. Is equity compensation, and I would think it would be, more flexible and maybe a greater tool to use to address DE&I because of its annual nature where you may be able to adjust vesting the amount granted, the amount awarded or even performance targets more frequently than you might be able to do with a larger scale compensation. Plus I think now it’s probably in excess of 50% of an executive’s compensation. So it may impact the total picture a little bit more strongly.

Stefan Gaertner: So we typically recommend our clients to look at pay equity across all compensation towards its base, its bonus, its equity and whatever other components you might have as an organization to your compensation system. When it comes to equity specifically, there are handful of things that make the equity analysis a little bit more complicated. The first thing is, well there are lots of ways to present equity. There’s restricted shares, there’s stock options, there are ongoing grants, there are new hire grants, there are spot grants and so forth. So each of these components would have to be modeled and understood separately, which really adds to the complexity there. The second thing that makes equity complicated is the value that you use. Okay. So if you grant a restricted stock, their value is different the very next day, right? So what we typically recommend is we evaluate equity, have to evaluate on the very day when you provided employees with that equity component.

Stefan Gaertner: So that helps a little bit, but again it basically includes the complexity of the analysis. Also, when you look at equity, you have to model out the eligibility rules because there’s nothing in the law that require you to pay the same amount of equity to everyone. But what it does require you to do is to make sure that people who are similarly situated who basically have the right, the same equity targets, that you treat them the same given their performance in all of that. So that’s another factor that makes equity complicated because we have to put in all of these different eligibility.

Lauren Jenkins: So it seems like human bias plays a big role in all of this. Do you think that’s fair to say? And just expanding a little bit on the things you’ve already touched on, what do you see successful companies do well to manage that human bias?

Stefan Gaertner: Yeah. At the end of the day, when I look at the data and I see this big 22% unadjusted pay gap. When we work with clients, we basically see that a big chunk of that we can explain. Men tend to work in industries that pay better. They tend to work in organizations that pay better, they tend to work in jobs that pay better. So they tend to work more in technology jobs than women and they tend to work in higher job levels. All of that is pretty much the rule based. So the remaining 3% to 5% is really the result of human bias or something else that nobody has ever found in the data. So I cannot prove for sure that it’s human bias, but it’s what remains. So, in all these years, it was really hard for me to see anything else that could possibly explain that.

Stefan Gaertner: And we even looked at performance ratings. So long way of saying that human decision making will never go away. And in my humble opinion, human decision making is quite effective to hire the right people to promote the right people, to give the right performance ratings. But there is this little element in there that we call bias that impacts human decision making. And that element seems to go to the disadvantage of women and minorities. So I think human biases are [0:22:09.6] ____. So what can we do about it? One way is to limit it further. And some clients are doing this, they’re basically trying to take more and more of the human decision making out of the process of setting pay, making people decisions. And I would say that might work to an extent. And the clients who are most aggressive with that, those are typically the clients that are dealing with legal risks that they can’t really handle in any other ways.

Stefan Gaertner: For the other clients, I would say a better solution or an alternative solution might be constant reminders, constant training, constant education of leaders to not stifle human decision making, but basically to make it better. And you basically see that it’s not working perfectly, but it’s working. It’s making things better over time. Just keep in mind, human bias usually doesn’t take the shape or form of somebody going to work in the morning wanting to discriminate against women and minorities. There are people like that, but they are very, very rare.

Stefan Gaertner: The more regular, the more typical form of human bias is the one that we are just not aware. It’s basically we’re making a decision and we have a certain prototype in mind of what a certain person should look like, who has a certain job, and it’s not affecting all of our decision, but it might have a tiny little impact on it, which also basically as I said earlier, maybe 3% of pay and it’s slightly slower promotion rate and higher rates for women over time. So that’s what I would say about human bias. I think organization should not try to get rid of it. Well, we wanna get rid of human bias, but it shouldn’t mean that we wanna get rid of human decision making.

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Chris Dohrmann: So Stefan, now we’re just gonna ask you a couple of short questions that really highlight your insights. So are you ready?

Stefan Gaertner: I’m ready.

Lauren Jenkins: All right. First question is, what three things can organizations do to go about building a diverse workforce?

Stefan Gaertner: Based on my background, probably no surprise that I will start on, start with lean on your data and on analytics, get the fact before you act. The second is don’t try to go into actionism and do something really, really quick. There are organizations who have the most success are consistent, they drive progress over time and monitor progress over time. And then third, don’t think of this just as a regulatory exercise. We actually do have some evidence that diversity drives business success, and frankly, the world around us is getting more diverse and as a result organizations have to adopt and get more diverse along with it. So think of it as a business spec, a business necessity as something that drives business in a positive way and that also will help you stay focused. I think those are the three things that I would mention here.

Chris Dohrmann: In one sentence, and I’m not gonna hold you to that, what’s the major blocker to the improvement and adoption of DEI in the US?

Stefan Gaertner: I would say it’s extremes. One way or the other. People who are too well-meaning or people who are blocking progress that are not in fault, that are basically extremes that are based on the lack of information.

Lauren Jenkins: All right. This one may be a little tricky as well. So if possible in one word or phrase each, what are the biggest three trends in DEI right now?

Stefan Gaertner: All right. I would say globalization of DE&I is the first one. We have a lot of history of that in the United States and in Canada. It’s basically becoming more and more prominent everywhere, growing uncertainty and politicization. The regulatory environment is getting more complicated and like everything else around the world, there’s a lot more opposition building up in both. Now, the whole thing, it gets more politicized and then more of the efforts of societies are becoming involved. So it’s not just the organization and the lawyers anymore, it’s basically activists, sports teams, boards, shareholders. So all sorts of elements within the society is getting involved in the conversation. I think those are the three trends that I’m seeing.

Chris Dohrmann: As the US economy shifts to human capital as opposed to manufacturing, what is the mindset that HR and total compensation folks have to adopt to be more successful in applying DEI to their organization?

Stefan Gaertner: Well, first of all, think of data as being your friend. HR is a lot of data and if you stick to that and if you use the data to leverage the data to make progress, you will be successful. And the other one is just be realistic. Again, the data helps you to set realistic targets. Don’t push too far, don’t push, don’t push hard enough. Just be realistic in what you’re doing. And yeah, the final one is don’t think of this as an HR exercise. Think of this as a business exercise and that’s going to help you be successful.

Lauren Jenkins: All right. Our last question is what is your outlook on the future adoption of DEI measures in the US? Are you hopeful?

Stefan Gaertner: Yeah, hopeful. We made a whole lot of progress over the last few years. I’ve been in people analytics for many years, and I have never seen anything like this progress we made over the last six years. Progress will continue and I will hope for it, but I do expect that it is going, that progress will start to level off over the next one or two years because it can’t really go on at the same speed as it has over the past few years.

Chris Dohrmann: Stefan, thank you so much for joining Prosperity at Work. It’s been a pleasure and please consider yourself openly invited to anytime you want to come back, if there’s a development that you think you need to share with us and our audience.

Stefan Gaertner: Thank you very much, president Lauren, and it was a pleasure to spend this time with you today.

Chris Dohrmann: And that brings us to the end of this episode of Prosperity at Work from JP Morgan Workplace Solutions.

Lauren Jenkins: If you’ve made it this far, thanks for listening and if you’ve enjoyed this episode, we hope you’ll review, rate, and subscribe to JP Morgan Workplace Solutions Prosperity at Work, available wherever you get your podcasts.

Chris Dohrmann: You can find more insights on equity, compensation, financial wellness, and more by following us on LinkedIn or over at globalshares.com, where you can download our new global equity compensation report 2024. Until next time, that’s Prosperity at Work. Bye.

Lauren Jenkins: Bye.

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Chris Dohrmann: Information provided in this podcast is intended for informational and educational purposes only. It may contain views which differ from the views of JPMorgan Chase and company. For specific guidance on how this information should be applied to your situation, you should consult a qualified professional. For full details, see the show notes on your podcast player right now.

Lauren Jenkins: The Prosperity At Work Podcast is produced by dustpod.io for JP Morgan Workplace Solutions.