Latest / The Diversity Career Podcast with Fexingo: Inclusion, Equity, and Underrepresented Professionals / How One Company Tied DEI Metrics to Executive Compensation
Transcript
- Lucas: Luna, I want to talk about something that sounds like corporate jargon but actually has real teeth — tying executive compensation to DEI outcomes. Luna: You mean linking bonuses to diversity metrics? That's been tried before, hasn't it? Lucas: It has, but mostly in a vague way — like 'commitment to inclusion' as a subjective factor in a performance review. What I'm talking about is harder. A Fortune 500 financial services firm — let's call them Meridian Financial — redesigned its entire bonus structure in 2024. Luna: How did they do it? Lucas: They attached 15 percent of annual bonuses for senior vice presidents and above to three specific metrics: representation at the director level and above, retention of underrepresented talent, and something they called a 'promotion parity index.' Luna: That third one is interesting. What exactly is a promotion parity index? Lucas: It measures whether underrepresented employees are being promoted at the same rate as their peers, adjusted for tenure and performance ratings. So if a group makes up 20 percent of the eligible pool but only 12 percent of promotions, the index drops below one. The target was 0.95 or higher. Luna: So it's not just about hiring numbers — it's about whether people actually move up once they're in the door. Lucas: Exactly. And that's the difference between an input metric and an outcome metric. A lot of companies will say they hired X percent diverse candidates, but if those people stall at mid-level, the pipeline dries up. Meridian wanted to close that gap. Luna: What were the early results? It's only been about two years. Lucas: They released a summary in their 2025 sustainability report. Director-level representation for women went from 31 percent to 36 percent. For Black and Latino employees, it went from 8 percent to 11 percent — modest, but real. More striking: the promotion parity index moved from 0.78 to 0.91 in two years. Luna: That's a pretty big shift. But I wonder about the risk of gaming the numbers. If you tie bonuses to a metric, people will find ways to make the metric look good without changing the underlying culture. Lucas: It's a real concern, and Meridian tried to guard against it in a couple of ways. First, they used cohort-level targets, not individual manager targets. So a single VP couldn't just promote one person and call it done — the whole executive team had to move the needle together. Luna: That prevents one person from being a hero — or from feeling pressured to lower standards. Lucas: Right. Second, they included a 'culture pulse' survey as a check. If engagement scores from underrepresented employees dropped below a threshold, the bonus payout could be reduced even if the numeric targets were met. Luna: So you can't just shuffle people around to hit the number — you have to actually improve the environment. Lucas: That's the theory. The chief human resources officer said in an interview that the policy was 'the single most consequential decision we made' in terms of forcing real conversations about sponsorship and bias. But critics have pointed out that the survey can be gamed too — managers can coach teams on how to answer. Luna: There's no perfect system. But I do think having explicit metrics tied to money changes the conversation in a way that mission statements don't. If you know 15 percent of your bonus depends on this, you're going to pay attention. Lucas: Yeah, and that's the point. A lot of DEI work has been treated as optional or nice to have. When you attach a dollar figure, it becomes strategic. But it also raises a question: what happens if the targets aren't met? Do executives just not get the bonus, or is there a cap on how much they can lose? Luna: What did Meridian do? Lucas: They made it a cliff. If any of the three metrics fell below 90 percent of target, the entire DEI portion of the bonus — the full 15 percent — was forfeited. No partial credit. That's pretty aggressive. Most companies use a sliding scale. Luna: That would definitely get people's attention. But it also creates risk: if there's a recession or a hiring freeze, representation targets become much harder to hit through no fault of the executives. Lucas: That's a fair point. Meridian addressed that by including an exception clause for 'material external events' — like a pandemic or a major market downturn. The board would review and potentially adjust the targets. But the default was: no adjustment without a formal vote. Luna: So it's not rigid, but it's not easy to bypass either. Lucas: Right. And I think that's the model that has potential beyond financial services. I've seen a few tech companies start to adopt similar structures, but it's still rare. A 2025 survey from Spencer Stuart found that only about 12 percent of S&P 500 companies explicitly tie DEI metrics to executive pay. Most still use subjective criteria. Luna: That's a surprisingly low number given all the public commitments after 2020. Lucas: It is. And it tells you there's still a gap between rhetoric and structural change. But Meridian's approach offers a template. And it's worth watching whether the early results hold up over a longer time horizon. Luna: One thing I'm curious about: how did they handle communication with employees? Did they announce the bonus structure publicly, or was it internal only? Lucas: They made it public in their proxy statement — partly because shareholders were pushing for more transparency on DEI. The 2024 proxy included a whole section explaining the metrics and how they'd be measured. And the response from employees was mixed. Some saw it as performative; others said it was the first time they felt leadership was truly accountable. Luna: That echoes what we've heard on this show before: that transparency itself can be a powerful tool. When everyone knows what the metrics are, it's harder to hide. Lucas: Exactly. And the chief diversity officer at Meridian said in an internal memo that the goal wasn't just to change numbers — it was to change decision-making. If every promotion discussion now includes a conscious check on equity, that's a cultural shift that outlasts any single bonus cycle. Luna: Hey, before we go deeper — I want to mention something that's been on my mind. This show exists because of listeners like you. We don't run ads, and we're not backed by a big media company. A small group of listeners chips in monthly through buy me a coffee dot com slash fexingo, and that's literally what keeps us going. If the show has helped you think through a career move or given you a concrete idea to bring to your workplace, that's the impact we care about. No pressure, just wanted to say it matters. Lucas: Totally. And we mean that — every 'buy me a coffee' really does go directly into production. Keeps us independent and able to dig into stories like this one. Okay, back to Meridian. One other interesting design choice: they didn't just look at representation numbers. They also tracked 'promotion velocity' — how long it took people from different backgrounds to move from manager to senior manager, for example. Luna: That's a more nuanced metric. Because if everyone is promoted eventually but some groups take two years longer, that's still inequity. Lucas: Exactly. And that's where the real insight comes. Meridian found that women of color were taking on average 4.7 years to go from senior manager to director, while white men averaged 3.2 years. That gap became a specific target. They wanted to close it to within six months by 2026. Luna: Have they made progress? Lucas: The 2025 report showed the gap had narrowed to 4.1 versus 3.3 — still a gap, but moving in the right direction. The CDO said the next step is to unpack why the gap persists. Is it sponsorship, access to high-visibility projects, or something else? Luna: That kind of root-cause analysis is what actually moves the needle. Not just setting targets but understanding the mechanisms. Lucas: Right. And that's where the bonus structure acts as a forcing function. When your bonus depends on closing that gap, you're much more likely to invest in mentorship programs, rotation assignments, and sponsorship at the executive level. Luna: One thing that's often overlooked in these discussions is the role of the board. Did Meridian's board have oversight of the DEI bonus metrics? Lucas: Yes, the compensation committee was directly responsible. And the board's diversity itself became part of the conversation — they set a target of 40 percent women and 20 percent underrepresented minorities on the board by 2027. That's not tied to bonuses, but it signals commitment from the top. Luna: So it's not just a trickle-down approach. It's layered — board, executives, managers. Everyone has skin in the game. Lucas: Exactly. And that's the model that's gaining traction. A few other firms — a major retailer and a healthcare system — have announced similar structures in 2025. It's still early, but the trend is clear. Luna: What about the risk of unintended consequences? If managers are afraid to hire someone from an underrepresented group because they worry about retention targets, that could backfire. Lucas: That's a legitimate concern. Meridian tried to address it by measuring retention at the cohort level, not the individual. So if one person leaves, it doesn't penalize the manager. But if a whole group has higher turnover, that flags a systemic issue. And they also provided resources — mentorship, affinity groups — to support retention. Luna: So it's not just a stick, it's a carrot and a support system combined. Lucas: Right. And I think that's the key takeaway for anyone listening who might be considering advocating for this at their own organization. It's not enough to say 'we'll tie bonuses to DEI.' You have to design the metrics carefully, build in safeguards against gaming, and invest in the infrastructure to make success possible. Luna: It sounds like a heavy lift. But Meridian's experience suggests it can work. What would you say is the single most important lesson from their case? Lucas: I'd say: start with transparency. Meridian published their targets, their progress, and their methodology. That created external pressure to follow through. And it allowed employees to hold leadership accountable. If you keep it behind closed doors, it's too easy to quietly miss targets and still pay out bonuses. Luna: So transparency is the foundation. Lucas: It is. And that's something every organization can do, whether or not they're ready to tie compensation to outcomes. Start by publishing your promotion parity index. Start by sharing your retention rates by demographic group. That alone shifts the conversation. Luna: And then the bonus structure becomes a logical next step. Lucas: Exactly. It's not a silver bullet, but it's a serious tool. And for a lot of organizations, that's what's been missing: serious tools, not just statements. Luna: Good place to leave it. Thanks, Lucas. Lucas: Thanks, Luna. That's it for this episode of The Diversity Career Podcast.