How to Build Diversity, Equity and Inclusion into Your Compensation Strategy

These days, most organisations recognise that embracing diversity, equity and inclusion isn’t just the right thing to do — it’s a crucial business imperative. There’s a tonne of research out there showing a link between DEI and everything from talent attraction to employee engagement to improved financial performance. 

There are many ways an organisation can strive to improve DEI, from setting up mentorship programmes for employees from underrepresented backgrounds, to investing in employee resource groups (ERGs) to encourage employees to connect and engage. In today’s article, we’ll talk about how employers can use one of the most powerful tools in their belt — compensation — to drive DEI outcomes.

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The importance of diversity, equity and inclusion in the workplace

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We probably don’t need to tell you that promoting diversity, equity and inclusion is the right thing to do. Most employers understand that seeking out diverse talent, paying everyone fairly and ensuring all employees feel respected and included at work is a good thing. But DEI can also have some pretty significant benefits for your company. For example:

• Improved talent attract and retention: Employees want to work for diverse and inclusive organisations and to know they’ll be treated fairly. Improving DEI can make it easier to attract top candidates, and retain them for longer. 

• Better decision-making: DEI could help your team to make better decisions. According to one study, organisations that are diverse in terms of gender, age and geographic location showed an improvement of up to 60%. 

• Creates a culture of trust: Fostering a culture of diversity, equity and inclusion facilitates greater trust between employees and leadership, and helps ensure employees feel respected and valued. 

• Boosts employee engagement and morale: DEI creates positive experiences at work and improves employee engagement and morale over time. In other words, improved DEI leads to happier, more productive employees.

• Increased profitability: Research from McKinsey finds that companies in the top quartile for diversity on their executive boards are significantly more likely to outperform their peers financially than bottom-quartile organisations. 

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The link between DEI and compensation 

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DEI is about recognising and valuing differences between the people in your workplace. And compensation can play a key role in helping you to achieve your DEI objectives by ensuring equal pay for equal work and fostering a culture of fairness, transparency and inclusion.

Here are a few of the ways compensation and DEI intersect in the workplace: 

• Pay equity: The concept of paying employees the same for the same work is a crucial factor in many organisation’s DEI initiatives. Regularly assessing your compensation structure and working to eliminate pay discrepancies can help you to achieve this. 

• Attracting and retaining diverse talent: The way you structure your compensation can help you to attract and retain diverse talent. For example, offering benefits that help employees to balance work with childcare could help you to attract more female employees. 

• Building trust through transparency: How transparent you choose to be about your compensation practices can have a big impact on employees. When they understand how their pay is calculated (and can see there’s a fair process behind it) employees are more likely to feel valued and included at work. 

• Career advancement opportunities: Businesses that truly care about DEI strive for diversity across the whole organisation, not just in certain departments or at certain levels. The criteria you use for promotions and pay increases (a key element of your compensation strategy) can have a big impact here. 

• Using compensation insights to drive DEI: Collecting and analysing compensation data through a DEI lens can give you a lot of valuable insights into pay disparities and areas for improvement. A data-driven approach, powered by the right technology, is crucial to meeting your DEI goals. 

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9 things you can do to build DEI into your compensation strategy 

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There’s a clear link between compensation and DEI — but how does that translate to concrete actions you can take today? Here are nine ways you can use your compensation strategy to help your organisation meet its DEI goals and objectives. 

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1. Tie executive compensation to DEI goals 

For any DEI initiative to be successful, it needs to have the full buy-in and support of your company leadership. By making DEI goals a key part of your executive compensation strategy, you can ensure strategic alignment and motivate leaders to work towards DEI outcomes. This also has a ripple effect throughout the organisation, as leaders champion DEI initiatives and encourage others to participate. 

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2. Conduct regular pay equity audits 

Conducting regular pay equity analyses is crucial to ensuring your pay systems and structures are fair. This is a process that involves identifying and addressing any pay gaps or discrepancies that could be due to discrimination or unconscious bias. Conducting these audits regularly also sends employees and potential candidates a clear message that you care about fair pay. 

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3. Set up fair and consistent pay structures 

If you want your employees’ compensation to be equitable, it shouldn’t be left to the discretion of individual managers. Instead, we recommend setting up pay structures that are clear, transparent and easy for employees to understand. For example, a well-designed salary band system can help you to ensure your salaries are fair and consistent. 

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4. Benchmark salaries against the market 

Comparing your organisation’s compensation with your peers through salary benchmarking helps to align your pay with industry standards. It helps you to identify employees who are paid outside of the standard range for their role and level, and take action to correct discrepancies. 

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5. Provide training on DEI and compensation 

It’s important to train managers and HR professionals on DEI principles as they relate to compensation, including pay equity. It’s also a good idea to provide employees with training that helps them understand their right to equal pay and how to address any concerns about pay equity. 

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6. Establish clear performance evaluation criteria

If pay increases are tied to performance in your organisation, you need to ensure the criteria you use for performance evaluations are objective. Putting in place regular calibration processes can also help to keep things consistent. Without this, you may find that some employees are arbitrarily rated higher than others due to unconscious bias — which could lead to unjustified pay discrepancies. 

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7. Ensure compensation reviews are fair and consistent

Your annual (or biannual) compensation review is an important opportunity to reassess your pay structures and individual salaries. And setting clear, consistent and transparent criteria for pay increases can help you to keep things fair. You may also want to avoid giving managers too much discretion in these pay decisions — or at least providing bias training. 

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8. Leverage benefits to attract diverse talent 

Benefits are a key part of your overall compensation strategy — and choosing the right ones could help you to attract and retain diverse talent. For example, providing childcare benefits could help employees who are parents to better manage the demands of their work and home lives. If you’re not sure which benefits would be most effective, consider surveying your employees and segmenting the results by gender, race, age and other factors. 

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9. Adopt a transparent pay policy 

These days, more and more companies are injecting at least some level of transparency into their compensation practices. That doesn’t mean you have to pull back the curtain and reveal absolutely everything that goes on behind the scenes in your organisation. But providing employees and candidates with key information about how their pay is calculated can help you to build trust and credibility. 

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Building DEI into your compensation philosophy

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Companies that are really serious about improving DEI through compensation know that it's not enough to consider it after the fact. Instead, the concepts of diversity, equity and inclusion need to be at the heart of all your compensation practices — which means they must be firmly embedded in your compensation philosophy. 

This is the only way to ensure DEI runs through every compensation decision that happens in your organisation, instead of being an afterthought. If you’re putting together a compensation philosophy for the first time, it’s a good idea to consider how you can incorporate DEI right from the beginning. And if DEI is not yet a core part of your compensation philosophy, it could be time to reassess it. 

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Learn more

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Want to learn more about pay equity and fairness? Here are a few articles from our archive to get you started: 

• How Salary Bands Drive Pay Equity (and Why You Should Care)
• Building a Business Case for Pay Transparency: 6 Steps to Follow
• Exploring the Gender Pay Gap in Europe in 2024
• How Compensation Reviews Impact Your Company Culture (and Vice Versa)
• 6 Reasons You Might Be Paying Employees Unfairly (and What To Do About It)

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