As companies rolled out DEI goals following protests against racial injustice that occurred in 2020, some sought to track their progress by tying these goals to employees’ compensation.
Linking DEI metrics to executive compensation became a common practice in the private sector, with more than three-quarters of S&P 500 companies doing so as of 2023, according to a report from The Conference Board and ESGAUGE. In some cases companies made DEI a KPI, or key performance indicator, by asking employees to detail how they contributed to these goals in annual performance reviews, possibly affecting their compensation.
Such practices had already landed some employers in legal hot water, but they’re under much more intense scrutiny now due to President Donald Trump’s crackdown on DEI. On Mar. 17 Equal Employment Opportunity Commission (EEOC) Chair Andrea Lucas sent a letter questioning US law firms about their DEI practices, and specifically asked them if they’d tied “partner or associate compensation to DEI or diversity efforts.”
The administration’s focus on this practice is prompting some employers to be more cautious about tying compensation to DEI, HR and legal experts say, but recent data indicates companies haven’t dropped these policies altogether. Firms may still evaluate employees’ contributions to DEI, but the language and metrics they use to describe these goals will likely change.
Where companies are being cautious. Andrew Turnbull, co-chair of global employment and litigation practice at law firm Morrison Foerster, said he’s seen some companies move away from tying DEI to compensation in recent years over fears it could provide fodder for litigation.
While “tying somebody’s performance metrics to achieving certain DEI objectives in and of itself may not be an unlawful practice,” he said, combining this with certain “aspirational targets or goals” could be used to bolster claims that an employer implemented hiring quotas, in violation of Title VII of the Civil Rights Act of 1964. A plaintiff might argue, for example, that the act of paying managers to meet certain objectives for hiring more women or people of color into their firm serves as evidence of discrimination, whether direct or indirect.
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“We are certainly advising companies to take a very hard look at those practices and determine whether they want to continue those or not,” Turnbull said
“Re-branding” DEI. The DEI backlash began well before Trump took office, and already Turnbull said some companies have moved to “rebrand” or “derisk” their practices to lessen their legal exposure.
So while companies may still see a value in DEI, and finding a way to incorporate it into their employees’ goals, there’s a chance they’re calling it something different at this point. McDonald’s, for example, no longer has “aspirational representation goals,” but still ties executives’ pay to “efforts that drive employee engagement and values, including inclusion,” Fortune recently reported.
“Organizations can still go about doing this, but they have to now be very careful about what the goals are,” said Ifedapo Adeleye, a professor and faculty director of Georgetown’s HR Management program, who specializes in compensation and total rewards, as well as DEI. He echoed Turnbull’s concern about tying compensation to DEI programs with quotas or direct targets. “The consensus around it is that most [organizations] will be adjusting some of the metrics that they use” to track progress against their goals.
Still, Adeleye pushed back on the notion that organizations are abandoning DEI entirely.
If executive compensation plans are any indication, these goals aren’t going entirely by the wayside yet. As of 2024 just under half (48%) of S&P 500 companies still incorporated ESG and DEI metrics into their CEOs’ compensation plans, Fortune reported, citing ESGAUGE data.
If managers and executives believe there’s a business case for DEI, they’ll remain committed to these principles regardless of whether it’s tied to their bonus, and no matter how it’s branded, said Andy Behar, CEO of shareholder advocacy organization As You Sow.
“If you’re a manager judged by performance of your division, then you’re going to have a diverse team,” he posited.