This month’s Harvard Business Review features a case study entitled “How Hard Should You Push Diversity?” in which the chief diversity recruiter of the fictitious GlobeBank wonders if he should penalize managers who promote only white men. The case study presents a compelling look at the ways in which diversity best practices can sometimes result in a backlash when executives feel that diversity initiatives, and diversity hires, are being thrust down their throats.
Driving Change Through Financial Incentives
In the case study, Martin Davidson, a writer and business professor at the Darden Graduate School of Business at the University of Virginia, poses the question: Should financial compensation be used as an incentive to increase the number of diversity promotions?
Some companies, such as Kraft, have had great success in diversifying their workforce by linking the diversity goals of each business unit to executive compensation. Sodexo, a noted leader in its diversity practices, has also established diversity metrics which are linked to bonus compensation. The New York Times writes:
“Ten to 15 percent of total bonuses for these [Sodexo] managers is tied to reaching and exceeding diversity objectives. Performance in this area is considered important enough that the diversity-related portion of the bonus is paid regardless of the financial performance of the company as a whole. ‘For us, that means 16,000 managers are held accountable for diversity,’ said Dr. Anand.”
Incentives or Quotas?
But these type of incentive programs can create unease amongst both managers and those perceived to be diversity hires. As Davidson points out in his case study, incentives can feel like mandated quotas to a lot of executives. He writes, “When you impose quotas, you always get a backlash—not to mention unintended consequences. Managing directors will start promoting every non-white face they can find, and those people won’t be equipped to survive.”
This type of backlash can result in damaging setbacks for diversity initiatives. Absolutely no executive wants to be perceived as bringing only their race and/or gender to the table. And absolutely no manager wants to work with a team of people who aren’t the most qualified available.
As John Veihmeyer, chairman and CEO of KPMG, writes:
“A policy of requiring a certain number of promotions from a given group risks undermining the belief that career success is based on performance. People who aren’t members of minority groups may think their own upward mobility is being constrained so that others can be favored. That has serious effects on morale, retention, and performance.”
So, how can this backlash be avoided?
Move Beyond the Numbers
To prevent financial incentives from turning into a counterproductive strategy, they need to be just one part of a much larger and established diversity initiative. George Borst, the president and CEO of Toyota Financial Services, writes:
“Executives should be measured and rewarded on diversity, yes, but not on the basis of how many minority candidates they promote—that just makes people suspect them of fulfilling a quota. The metric should be more subtle and more valuable: How many minority candidates have they positioned for success? That means leading initiatives that recruit, identify, coach, and mentor minority talent.”
Think Big Picture
Diversity and gender balance don’t happen over night. Even though it is essential that companies immediately address diversity issues by improving the performance and promotion rates in underrepresented groups, true change happens slowly.
An essential component of a company’s big picture strategy must include making the leadership pipeline more diverse. Veihmeyer writes:
“A company must take a long-range view and start developing candidates at the very beginning of their careers. KPMG’s senior management team focuses on setting the vision and establishing broad goals such as ensuring that the company becomes more diverse in five years than it is today.”
Culture is Key
Above all, a commitment to diversity must be a core priority for the entire company and must be continually and authentically integrated into every aspect of business culture and strategy.
If companies strengthen their pipeline of women and minority executives, create a transparent hiring and promotion process, and embrace an inclusive culture that thrives on the benefits of having a diverse workforce, then linking compensation to diversity goals will further promote diversity initiatives without creating an unwanted backlash.