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De-Mystify Diversity With These 5 Critical Steps: Data-Driven HR Strategy Series, Part 2

DiversityIn last week’s blog post, I demonstrated how the successful recruiter needs a balance of experience and data to land great talent.

This week, I am going to look at another HR priority that is ripe for datafication: diversity.

Diversity can be a very powerful thing for businesses.  Studies have shown that diverse workforces are more innovative, perform better, and can help expand a company’s pool of prospective customers.

Building a diverse workforce has benefits that extend beyond safeguarding against discrimination lawsuits or satisfying EEOC (Equal Employment Opportunities Commission) reporting requirements. But getting an accurate view of diversity levels is easier said than done.

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By following the five steps below, you can gain an understanding of how well you are performing in terms of diversity, and where your organization needs to improve. This will ultimately give you the diversity metrics you need to make better decisions about investing in retention programs and other initiatives.

Step #1: Calculate the minority ratio

The minority ratio gives you a high-level view of the overall ethnic diversity in your organization. To calculate the minority ratio, divide the headcount of ethnically diverse employees by the total headcount.

Minority Ratio = Diverse Headcount / Total Headcount

It is important to consider the minority ratio for different teams, roles, and levels within your organization. For instance, it is possible to be diverse overall, but to have a leadership group, or a specific department or role, that lacks diversity.

Once you understand how diverse your workforce is, you can then monitor this metric to gauge progress towards your goals.

Also, you can compare the minority ratio against benchmarks for geographies and job categories. For example, the EEOC publishes its database of labor participation for different ethnic groups across industries, states and functional groupings. Benchmarking your minority ratio will not only reveal how well you are performing in terms of compliance, it will also reveal how well your organization stacks up against others.

Red flags to act on:

A decline in diversity ratio should be seen as a warning sign. If your organization is losing people who are ethnically diverse, it suggests there is something in your organizational behavior or climate that does not foster a good work environment for this group.

If your company’s minority ratio is 5 – 10% below the benchmark for your geography or by EEOC functional group, then you should consider whether your recruitment approaches are bringing in diverse candidates or whether your corporate culture is fostering a diverse employee population.

Step #2: Calculate the female ratio

Female ratio is a metric that determines whether or not your organization is effectively creating a positive climate for women.

To calculate the female ratio, divide the headcount of female employees by the total headcount.

Female Ratio = Female Headcount / Total Headcount

Like with the minority ratio, calculate this ratio for different segments within your organization, and look to check your results against industry benchmarks.

Red flags to act on:

If your organization is losing women at a faster rate than male employees, it suggests that there is something in your organizational behaviour or climate which does not support a good experience for female workers. Do some detailed analysis to find out why women are leaving faster than men.  Is it due to pay, promotion opportunities, working conditions, or other factors?

Step #3: Compare compa-ratios and performance ratings

Having established a high-level view of your diversity through the minority and female ratio metrics, the next area to focus on is how these groups are treated within your organization. Hitting your overall target is great, but, if you do not monitor and track the experience of these groups within your organization, you may not stay on target for long, or you may struggle to move beyond your current levels.

This is where the ability to analyse compa-ratios and performance ratings is fundamental to understanding the dynamics within your organization. Being able to demonstrate that pay and performance ratings are unbiased for minority groups and women is key for every organization.

Compa-ratio is a classic compensation calculation. It indicates how close a person’s base pay is to the pay level midpoint for the role they perform. If minority groups or women have a lower than average compa ratio, then it is likely that pay decisions are not being made in an equitable manner.

In the same way, understanding the proportion of employees who receive each performance rating and then comparing this to the proportion of each rating for diverse employees shows you whether performance ratings are handed out in an unbiased manner.

The one caution is that this type of analysis assumes that things like tenure, age and experience are equivalent in the diverse and broader population.  If this is not true, then there are legitimate reasons for the variation. The key is to work from the macro picture first, and then drill into the details of age, tenure, and experience once you know whether or not there might be an issue.

Red flags to act on:

Any time that the average ratings for metrics like compa-ratio or performance rating proportion are different between your diverse population and your broader population, you have an issue to investigate. The differential treatment may be justified, however, it is important that you know — and can explain — why this differentiation exists.

Step #4: Determine diversity growth

Now that you understand your overall diversity position and the internal dynamics within your workforce, the next place to focus on is the continued growth of employee diversity. To achieve this, you need to switch to assessing your recruitment — but focus on the diversity of your applicant pool (your recruiting pipeline), rather than the diversity of your new hires.

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Many companies look at the diversity of their new hires to gauge their performance, but this can be challenging: there is the potential to bias hiring decisions, especially if you are not hitting a desired target. A better approach is to track and report on the diversity of your applicant pool. If your organization is attracting diverse candidates, then it is logical that the best candidates from this group will be hired, leading to an overall increase in diversity. If you are not attracting diverse candidates, then this suggests there could be (unintentional) bias in your recruiting programs, or issues with your external employer brand.

Data collection is a tricky issue with this measure.  You cannot force people to identify their ethnicity or their gender as part of an application, but, with an appropriate request, individuals are more likely to answer these questions.

To calculate your results, simply perform the minority ratio and female ratio calculations for your applicant pool. Remember to remove those applications where gender and ethnicity are unknown from the calculation.

Red flags to act on:

The cautions in this area are straightforward.  If the diversity of the pool is lesser than the diversity of your organization overall, then your ability to maintain your current level of diversity could be challenged. Similarly, if the diversity of your pool is less than the benchmark for the role or geography, then your organization is at a disadvantage.

Step #5: Monitor the diversity of your succession pool

It is the dynamic nature of the workforce that makes diversity analysis both interesting and challenging. The flow of people in and out of organizations is constant and the timeframe for these shifts can be lengthy. Consider the fact that many organizations set 10-year timeframes for developing their future CEO candidates. Hence, as well as managing the here and now of diversity, it is critical to monitor activities which will impact the future of the organization. Monitoring the diversity of your succession pool will give you insight into the future diversity of your organization.

The calculation of basic diversity metrics is straightforward. The challenge can be having access to all the data you need in one place. For example, to understand the diversity of your succession pools, you should calculate the percentage of the pool that is either female or ethnically diverse. However, the diversity data often sits in one HR system, while the succession status of candidates sits in another.  Working with an analytics tool that combines these sources into a single view is an advantage when solving this problem.

Red flags to act on:

If the diversity of your succession pool does not match that of your overall leadership pool and /or is less than the overall diversity in the organization, then your organization has a challenge in developing diverse leaders to the highest level of ability. This is not something that can be fixed overnight. Simply adding more diverse candidates based on their diversity, not their capability, is the wrong response. Shifting this number takes time, investment and a conscious focus from leadership.

Diversity Program ROI

The ideas and calculations I’ve discussed are just the start. There are many other, deeper metrics and analytics you can explore to better understand your organization’s diversity, and deliver results that your CEO will love.

One of our customers shared a story with me recently. Their VP of Culture and Diversity was puzzled that despite hiring  a more diverse workforce, their minority ratio hadn’t improved. By digging into their full range of data and quickly analysing results for different locations, teams, roles, tenures, pay grades and more, they were able to uncover and pinpoint the exact cause of their challenge. They found that  three groups of specific minority employees were walking away faster than they were hiring. Diverse employees in a certain department and role, with a certain age and tenure, were more likely to resign. They were then able to cost and implement programs to address these very specific groups, and get quick results. More importantly they were able to use evidence to explain this to their executive leadership team.

By having a clear picture of the overall health of your organization’s diversity levels, you can identify areas for improvement, then implement diversity programs with laser-guided precision. By tracking progress over time, you can demonstrate the ROI of your efforts.

To learn more about how diversity leaders can use data to move the needle on key outcomes, download this whitepaper: Delivering on Diversity and Inclusion.

About the author: Ian Cook

Ian is an advocate for the crucial role that people play in helping companies thrive. His career has focused on enabling people, teams and companies to perform at their best. For the last 15 years Ian has been helping leaders elevate their HR strategies and programs through the effective use of people analytics. At Visier, Ian led the development of our market leading solution and is now focused on the overall strategy for the people analytics business.

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