KPI Position Statement
The Gender and Diversity KPI Alliance believes it is vital to measure diversity, equity, and inclusion (DEI) in the workplace to create environments where everyone can maximize their potential. The right measurement is critical, and we recommend using key performance indicators (KPIs) as a starting point to understand where an organization stands and where there may be issues that need to be addressed.
One of the axioms of business is that you can’t manage what you can’t measure, and that what you measure tends to be improved. This is just as true for DEI as for any financial measure that corporations track. It is important to measure the right things; measurement focuses on monitoring results, not effort. The number of DEI policies is not a key metric. Rather, the value is in whether actual progress is made.
Choosing the right level of measurement is essential. If too many items are measured, the big picture may be obscured. A good measuring tool focuses on key items that drive progress. If too few items are reviewed, important details can be missed. The overall pay ratio of women and underrepresented groups, or the demographic breakdown on boards, if used without context, can provide an incomplete view of the diversity in an organization. What is needed are balanced measuring tools—neither too comprehensive nor too superficial.
Using Key Performance Indicators to Create an Inclusive Corporate Culture
We believe focusing on a set of KPIs addresses the measurement conundrum. Using these KPIs can help pinpoint areas of focus that are critical to maximizing the potential of a company’s entire workforce. The indicators we recommend are:
- Percentage of representation on an organization’s board.
- Percentage of representation by employee category.
- Pay equality: the ratio of compensation by employee category (e.g. equal pay for equal work).
These KPIs will measure gender and underrepresented groups where applicable (this would mean race and ethnicity in the United States).
These KPIs were derived from the work of the World Economic Forum International Business Council, the Global Reporting Initiative, and other sources. The KPIs provide a common language for discussing DEI that can be used by any company. Organizations can use them internally to benchmark their progress over time. Should the KPIs point to an area of concern, companies have a gauge for further analysis.
The KPIs were chosen because they spotlight progress through an organization’s structure. Are women and underrepresented groups well represented in different employment categories and at every level? Is their pay comparable to the majority at each level? If the answer is yes to these questions, the company most likely has a diverse and inclusive workforce in which both women and men, as well as people from underrepresented groups, have access to top management roles.
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One of the axioms of business is that you can’t manage what you can’t measure, and that what you measure tends to be improved.
If this is not the case, there are fundamental metrics that can help companies delve further into the underlying causes of any discrepancies including:
- Representation: Where are the representation gaps in an organization’s pipeline? Where and why do any falloffs in representation occur?
- Hiring: Is an organization hiring women and under-represented employees into both entry-level and experienced roles?
- Turnover: Are people of all backgrounds leaving an organization at comparable rates? If not, why are there differences, and where are people going? At what level is this occurring (may point to leaky pipelines).
- Promotions: Are some employees being promoted at faster rates than others? Are they being sponsored differently? Are they given stretch assignments?
- Time in Position: Are some talented employees sitting longer in a role before they are recognized for promotion than others?
- Line vs. Staff: Are women and people from under-represented groups primarily in staff roles? If they are in line positions, do they have as much responsibility as others at their levels?
These metrics help identify specific “pain points” so leaders can ask appropriate questions and implement specific interventions. For example, if there is a decline in representation at the first level of management, is that because people from certain groups are not being promoted at appropriate rates, particularly to ensure their representation later in the pipeline, or because they are leaving the organization at that level, suggesting that there could be cultural and/or structural barriers to advancement at that level? We are not advocating one set of specific policies for everyone. Rather, we believe that companies should use the KPIs and metrics to determine what is needed for their particular organizations.
One important consideration in adopting these KPIs is how to define employment levels. There are methods already used by various diversity indices that define broad employment categories such as senior management, middle management, etc. Using these categories can be helpful for a high-level view of an organization. An important consideration is that whatever employment-category method is chosen by a particular organization should be kept consistent over time.
When calculating pay ratios, we suggest that all forms of compensation, such as salary, bonus, stock, and options, be included. As employees progress, the non-salary components of pay become increasingly important.
There are two key issues that can be unpacked with pay equality: equal pay for equal work (pay equity), and whether women and underrepresented groups have equivalent positions to men and majority groups at different management levels.
To determine whether employees are compensated on an equal-pay-for-equal-work basis, it is helpful to evaluate ratios for similarly situated employees based on their level/category and role/job type in the organization. Calculation of a ratio of compensation by employee category alone, such as organizational and/or management levels, may need to be further understood. This ratio results in an average that reflects the relevant gender, racial, or ethnic characteristic but lumps together people who have different jobs, skills, experience, and work locations. A low pay ratio might not indicate that people are not being paid equally for equal work, but rather that they work in roles that are not as highly compensated as other people in this category.
In the longer term, companies may want a perspective on how their KPIs compare to those of other companies in their industry or region. Third-party data providers might choose to provide anonymous peer comparisons. When this occurs, it will be important to use a set of employment categories that are standardized for all companies.
We are confident that more companies can become global leaders in expanding opportunities if they implement a strategy that tracks and sustains measurable, organization-wide progress. The KPIs, along with fundamental metrics listed above, provide information so employers can address what is happening in their talent pipelines. Combined with efforts to create more inclusive cultures, companies can achieve better business performance and more just and equitable workplaces.