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Should Companies Tie Performance Bonuses to Diversity Goals?

Alison Napolitano
Alison Napolitano

Can money help companies over even the highest hurdles?

Recently, more tech companies have publicly said they’ll be addressing “diversity problems” by setting specific diversity targets — and, even, attaching money to those goals. Microsoft made headlines late last year when it announced it would tie executive bonuses to diversity after the number of women in its workforce dropped.

When corporations set diversity goals — and back up their intentions with cold, hard cash — it can raises hackles among the status quo and can even raise legal questions. But it also suggests that companies, increasingly, are taking diversity much more seriously, largely because they’re seeing it as essential to their bottom lines.  

And women, are especially critical to this particular metric of success, according to a recent survey by the UNC Kenan-Flagler Business School Executive Development. Women, it turns out, are better at cultivating diversity and inclusiveness in the workplace. Yet women occupy barely one-fifth of C-suite jobs, so they don’t have the same leverage to influence their corporate cultures as the men across the table from them.

That diversity is critical. The UNC Kenan-Flagler study by the online MBA program points out that millennials have become the largest segment of the workforce — the most racially diverse ever — and companies are increasingly embracing LGBTQ policies. At the same time, connections to colleagues are making the modern workplace a complex mix of cultures, races and genders.

“To succeed in this environment, organizations will need their leaders to adopt management styles that not only accept this new workplace paradigm, but champion it, recognizing that diversity in appearance, attitude, thought and deed leads to organizational value,” the survey’s authors write.

According to the U.S. Department of Labor, the number of men and women in the workforce is about even. Women currently make up 47 percent of the total labor force in the U.S., and within two years will make up 51 percent.

But according to research from and McKinsey & Company, which recently published their “Women in the Workplace 2016” study, a sweeping look at women in corporate America, only 19 percent end up in C-suite jobs. The groups’ 2015 study, meanwhile, found that if companies continue hiring women at the current rate, it could take more than a century until half of the employees in top positions are women.

So, clearly, men in the upper tiers of their corporations could use a little encouragement.

Companies often lean on employees to refer new hires, and that, over time, has created monochromatic workplaces. Friends usually refer friends, and friends often look like each other.

Enter the diversity bonus

In 2014, Facebook began giving its staff recruiters more points for diversity hires, potentially leading to higher bonuses in its point-based incentive system. In 2015, Intel took a more direct step, offering $4,000 — double the typical bonus — to employees who referred diversity candidates the company ended up hiring. Following in tech companies’ footsteps, consulting firm Accenture said in 2016 it would boost bonuses to any of its 48,000 employees who referred diversity candidates. (Accenture, like Facebook, Google and Apple in the preceding years, released its internal data publicly, a move seen as a progressive step toward transparency.)

The results are patchy. Intel says the bonus helped nearly double its diversity hires over 2014, exceeding its goal of 40 percent diversity hires by 3 percent. Facebook made some progress, too. In 2014, women made up 31 percent of its global workforce. By 2016 that number had gone up a modest two percent. The company said, however, that only 4 percent of its U.S. employees were Hispanic and only 2 percent were black, showing no improvement over the preceding two years.

The mixed results could drive some uncertainty about whether bonus programs work. Indeed, diversity bonuses have raised questions, not just about efficacy, but about legality over “quotas.”  The Equal Employment Opportunity Commission has warned companies to be cautious about setting targets, which could be seen as barriers to non-minorities.

But more companies are clearly willing to face legal questions, realizing that putting money behind diversity sends a clear signal about a corporate culture in the short term and profitability in the long term.

In 2015 Johnson & Johnson, despite any legal qualms, announced it would tie bonuses for its top managers to the number of diversity hires they made, including the number of women.

“People say, ‘You’re discriminating.’ It’s not about that,” Sandra Peterson, the company’s group worldwide chairman, told the Wall Street Journal. “The signal of the importance of something is whether you’re actually measuring it and you’re holding people accountable to improving those numbers.”

And last year, tech behemoth, Microsoft took a similar step after its most recent internal data showed a drop in women employees — a drop the company attributed to the loss of its Nokia handset unit, which employed disproportionately more women. On the leadership side, though, women saw a .6 percent bump.

“While we are disappointed in the overall decline in the representation of women at the company, we know why it happened,” wrote Gwen Houston, the company’s chief diversity and inclusion officer, in a blog post. “We are encouraged by the modest gains we’re seeing in female representation in technical and leadership roles, and even more significantly, by the hiring trends of the past year that resulted from our efforts to recruit top-notch female talent.”

The answer, though, may be Microsoft’s pipeline — a likely source of diversity for companies across the tech sector and beyond.

Females made up more than 36 percent of the company’s interns hired in the US in 2015. What does that mean? Just 14 percent more to go.


 Image from Shutterstock

Alison Napolitano
Alison Napolitano
Alison Napolitano is a Senior Marketing Manager at 2U where she supports community outreach for 2U's programs. Alison has a background in digital marketing and a passion for helping great brands succeed online.