Analysis: as Asos scraps DEI bonus target, what are the implications for HR and businesses?

People Management asks experts for their thoughts on the firm’s decision to focus its incentive scheme more on profitability

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HR professionals have expressed concern after Asos removed the diversity criteria from its annual CEO incentive plans - with one calling it “short-sighted".

According to its most recent annual report, the online fashion retailer said that it does not want to detract from its focus on profitability.

Jacqui Barrett, co-founder and managing director of Wider Thinking, told People Management that there is plenty of evidence that suggests making your business more diverse and inclusive will positively impact profits, future-proofing and robustness. 

She said: “It is short-sighted to kick EDI targets into the long grass.”

Barrett said there needs to be an improvement in diversity in leadership to “better reflect the communities it serves” - adding: “What is this message saying to their diverse customers?

“Using economic pressures to scale back on efforts is a poor excuse when many aspects of making a workplace more inclusive do not come with a high price tag.

“Many options of flexible working, for example, cost nothing. This is a huge gateway to create better equity, diversity, and inclusion,” said Barrett. 

People Management explores why Asos made its decision and asks DEI and HR professionals for more of their thoughts.

What happened?

Annual executive compensation at the online fashion and cosmetics company will now be dependent on meeting profit targets, raising share prices and growing profit margins. 

In its annual report, which was released on November 22, it said: “While some progress was made against the strategic measures, the financial metrics were not met and the committee determined that no bonus will be paid to the executive directors for FY23.” 

According to the report, the performance metric was chosen because it is a “good proxy for operational cash” and “is what management will be focused on delivering for the year ahead”. 

Despite this, the annual report said that women had 50 per cent representation on the Asos board, with a female senior independent director, and that they met the Parker Review goal of having at least one ethnic minority director.

Why did this happen? 

In the most recent financial year, Asos' annual bonus was 15 per cent based on revenue, 25 per cent adjusted profit before tax, 35 per cent adjusted free cash flow and 25 per cent strategic and ESG indicators. 

The strategy and ESG component was evaluated based on DEI (female and ethnic minority leadership aspirations), stock turn and cost mitigation performance. 

Instead, for its current financial year, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) accounts for 75 per cent of the bonus, with the remaining 25 per cent determined by closing stock, adjusted gross margin and cost-to-service targets. 

Asos said in its report: “As we do not wish to detract from our emphasis on profitability and believe that including a downwards-only modifier is more appropriate than providing the potential to earn an additional reward, we concluded that we would not incorporate ESG as a stand-alone measure.” 

Is it part of a growing trend?

Increasing diversity became a top focus for many businesses during the pandemic, but economic pressures were cited as a reason for many to pull back.

According to a recent survey by CpL's Talent Evolution Group, which forecast the top 10 talent trends that will shape recruitment and retention in 2024, DEI is expected to be deprioritised in 2024, with 42 per cent of C-suite business leaders rating it as a low priority.

This comes after DEI chiefs from prominent brands such as Disney and Netflix were let go or left their organisations earlier this year. 

HR reacts

Kate Palmer, HR advice and consultancy director at Peninsula, says it is important for many reasons that workplaces continue to focus on diversity, equity and inclusion.

“Firstly, organisations that prioritise this are likely to be able to recruit from a much wider pool of talent and experiences,” she said.

“Employees are more likely to stay longer with the organisation if they feel included and valued; the knock-on effect of this could help the business grow and flourish.”

Palmer added that, if a company does not make diversity and inclusion a priority, it may face discrimination claims. 

She said that, while some businesses may choose to set their executives' targets to include EDI, this should only form part of its approach.

“Creating and maintaining a diverse, inclusive and equitable organisation requires a holistic approach and action at every stage of the employment cycle.”

Rupa Mooker, director of People and Development at Morton Fraser and MacRoberts, told People Management that diversity is more than a numbers game.

“It can be far more effective to focus on the way employees feel about where they work and what the company culture is like,” she said, adding that employers should prioritise making their processes, from recruitment to retention to progress, “fairer and more accessible”, which usually has a naturally positive impact on workplace diversity.  

According to Shakil Butt, D&I consultant and founder and CEO of HR Hero for Hire Ltd, stated intent and actions must be aligned for any organisation to be considered credible.

“Diversity as a long-term goal is clearly not that important if in the short term, there is no driver for the executives to focus on diversity.” 

He added: “The wider implications for businesses, as an established brand backtracking, sends a negative message that diversity is not important and gives permission to others in the industry and beyond to also rethink their commitments to creating more diverse and inclusive organisations that reflect the customers they are trying to serve.”

Musab Hemsi, legal director and an accredited specialist at Anderson Strathern, said there is a substantial evidence base linking diverse teams with higher performance, productivity, innovation, profitability and employee engagement.

He said: “Rather than prioritising profits over people, progressive companies find an authentic and sustained investment in diversity and ESG more broadly, as a gateway to vast commercial benefit, among other cultural positives."

Meanwhile, Dianne Greyson, managing partner at Synergised Solutions, says companies need to think more about the "people they wish to sell their products to."