Improving Diversity in the Workplace

I trade options in the stock market. As some of us who do this on a regular basis know, options are the right to buy or sell a stock at a certain price within a certain time-frame. Because they do not involve the actual buying or selling of stocks, just the right to trade them, they are a lot less expensive than the underlying stock. There is also the risk that if it doesn’t make sense to exercise this right within the timeframe for which the option is valid, it expires worthless.

For example, a single share of Amazon stock is worth $1936 at today’s close. But an option to buy the stock at $1940 (known as a call) until Jun 21, 2019 only costs $231, a little more than 10% of the price. If the price of the stock goes higher than $1940 + $231 = $2171 between now and Jun 21, 2019, the owner of this option can choose to exercise the option and make a profit. And if that doesn’t happen, the option will expire worthless on Jun 21, 2019.

One of the big challenges with getting diverse talent into an organization is timing. Sometimes the appropriate role is open, but the diverse candidate is not ready to leave their current position. Sometimes the diverse candidate is available, but the appropriate role for them is not open.

If we could solve this timing problem, many recruiters and companies would love it, because it would make their quest for diversity a lot easier.

What if some of the recruiters within a company were focused on finding diverse talent, regardless of open roles?
Not having the constraint of having to fill open roles would immediately increase the number of talented diverse candidates that can be identified, and also enable pursuit of passive candidates, who may not be looking for new roles.

When these talented diverse individuals are discovered, what if these recruiters have the ability to buy a call option on them for a fixed duration of time, say a year?

If the job was priced at $100,000 in base, bonus, and benefits, what if the call option for one year was worth $5000?

What this would mean is that $5000 would be paid up front by the hiring company to the selected candidate. That $5000 would buy the hiring company the right to come back and hire this person any time within the next year when the appropriate jobs, which are determined in advance in terms of roles and compensation, open up. If such roles don’t open up within a year, and the hiring company never comes back with a specific job offer that matches the specifications agreed upon, the diverse candidate gets to keep the $5000.

An arrangement like this might give companies a pre-determined diverse bench to go to when the right jobs open up, and accelerate the hiring process when that happens because the vetting process has occurred in advance. It would also incent hiring managers within the company to use this diverse bench because of the call option price paid in advance. And it would incent candidates to accept the job offer when it is made because they have signed an agreement to do so, and taken the call option money.

Of course, there are enforcement risks here associated with the candidates not accepting the specific role when it is offered, but I will leave that to the general counsels to figure out. And there are budget risks at an enterprise level with such a program if a large percentage of the candidates for which call options are bought end up not being hired, but I will leave that to the CHROs to figure out.

I told you these were out-of-the-box ideas. But you must admit it is intriguing

Verizon does a lot of things well. One of those things is an excellent retention strategy for senior leaders. That is part of the reason you don’t see a lot of executives leaving the company once they hit a certain level at the company. It is called deferred compensation.

Once you reach VP level, your deferred compensation as a proportion of your total compensation goes up significantly at Verizon. That means that every year, there are sizable stock awards that vest over the next few years.

If you ever think about leaving Verizon, all you have to do is look at your Fidelity account and see how much money in unvested stock you will be leaving on the table if you exit, and you end up quickly reconsidering your departure.

Why is this relevant for diverse talent?

One of the biggest challenges in diverse talent management for large companies is the leaky boat phenomenon. After all the effort to draw diverse talent to the organization, as this talent grows professionally and finds its value, they end up leaving for greener pastures, resulting in several hundred million in stranded investment in their training and development

Want your high performing diverse talent to stay?

Regardless of their level, create a deferred compensation system that makes it irrational and illogical for them to leave. Kahneman and Tversky have proven that people are loss-averse more than they are gain-prone. Chances are they are not going to want to lose the sustainably certain money they already have in their stock account for the uncertain potential gains of a new job.

Yes, it will require companies putting their money where their mouth is. That is what a commitment to high performing diverse talent may need to mean to achieve the kind of impact we need to achieve.

We all know that what gets measured gets managed, and what gets rewarded gets accomplished. Yet, when it comes to diversity metrics, we expect things to improve magically, without putting targets on leaders’ scorecards.

Most of the time, the reason for the absence of diversity objectives is because of the concern around litigation as a result of intended consequences.

It is not an unreasonable concern. But companies that have tried and failed to improve their diversity situation have realized that they need to find ways around this problem, and articulate clear, stretch, compensable diversity metrics and targets.

Unfortunately, the few companies that have had the courage to try this may not have done it right. They use one diversity metric, make the target absolute, and they make it an additive number on the scorecard. The first two tactics lead to perceptions around arbitrary quota-setting, and the third results in such a small percentage being assigned as a weight to diversity metrics (after customer, employee, and shareholder metrics) that it never gets prioritized by the senior leadership of the company.

Instead, I recommend that companies try the following approaches to make diversity metrics COMPREHENSIVE, RELATIVE, and MULTIPLICATIVE.

1.  Use a COMPREHENSIVE diversity index as a metric that is a composite of 5 different performance dimensions on diversity – recruitment, retention, engagement, advancement, and representation.
2. As targets on these metrics use RELATIVE, not absolute, goals with respect to external availability (based on census reports) or internal benchmarks (based on comparable numbers in the majority constituency)
3. Position the diversity index as a MULTIPLICATIVE, not an additive metric on leader scorecards, so that they can qualify for more than 100% of their bonus if they make the target on the index.

I will guarantee you that in one year your diversity metrics will improve.