pay for performance

Could bonuses lead to more diversity at the top?

October 30, 2013: 12:36 PM ET

One reason why so few women and minorities reach senior jobs has to do with a lack of financial incentives for their bosses, a new study suggests.

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FORTUNE -- If your employer is typical of big U.S. companies, you may have noticed a pattern. As consumers grow increasingly diverse (with current minorities projected to make up 46% of the population by 2030, and 55% by 2050), recruiting at the entry level is more inclusive than it's ever been. Yet, when you look at senior management and the board of directors, nothing much has changed.

One study of the "leaky pipeline" between the bottom and the top, by financial firm Calvert Investments, found that 56 companies within the S&P 500 have no women or people of color among their highest-paid executives, and 75% have no minority directors. Women, who make up more than half the workforce and the majority of college grads, are gaining ground in senior management but, among the Fortune 500, female board membership has stayed flat, at about 17% since 2005.

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No doubt, the reasons for the leaky talent pipeline are complex, but part of the explanation may be money. Although managers in lots of companies are encouraged to spot talented women and minorities and coach them on how to move up, few of those bosses have any financial incentive to do it, according to a new poll by executive recruiters Korn/Ferry.

While 96% of senior managers believe that "having a diverse and inclusive workforce can improve employee engagement and business performance," only 52% say promoting diversity is a factor in their own performance appraisals -- and most (77%) say it plays no part in their incentive pay.

It's a truism that what gets rewarded gets done, but can't managers mentor minority talent without getting paid for it? "Certainly they can, and many do," says Oris Stuart, a Korn/Ferry senior partner. "The question is one of accountability. Unless it affects compensation, a diversity policy has no teeth, because -- even if it's a criterion in performance appraisals -- it's perceived as less important.

"Most managers now are under so many competing pressures that, without a financial incentive, inclusiveness falls victim to other demands," Stuart adds. That's especially true, he notes, because coaching people unlike themselves is outside of many managers' comfort zones: "Often, bosses see giving constructive criticism to minorities and women as too risky, partly because they don't want to say anything that might seem racist or sexist. It takes a somewhat different set of skills and, without a financial reason to learn them, those conversations often just don't happen."

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Moreover, Stuart believes that, in many companies, the lack of women and minorities in senior jobs becomes self-perpetuating. "If you're at the entry level or in the middle and you see no one who looks like you anywhere near the top, you may question whether it's worth putting in the effort to get ahead in this organization," he observes.

At that point, "female and minority employees start wondering, 'What happened to the people who came before me? Why haven't they succeeded here?'" he says. "They often end up leaving" -- which in turn makes for even less diversity in the talent pipeline. Stuart adds that employees are keenly aware of "the gap between the rhetoric and the results" of many corporate diversity programs: "Making diversity a component of incentive pay could help close it."

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