Why it isn’t enough for companies to recruit employees of color

Government attempts to dismantle discriminatory policies and practices that have placed people of color at a financial disadvantage have largely failed. This is due in part because public buy-in is inconsistent. As much as people say they want a leveled playing field, they tend to chafe when called upon to relinquish their own privileges.

Yet the persistence of the racial wealth gap continues to stifle the country’s economic potential. Consulting firm McKinsey & Co. estimates the dampening effect of the racial wealth gap on consumption and investment will cost the U.S. economy between $1 trillion and $1.5 trillion between 2019 and 2028. That’s 4% to 6% of the projected GDP in 2028.

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The pandemic has the potential to make these gaps even wider. An estimated 60% of black households are facing serious financial problems as a result of COVID-19’s economic fallout, according to a poll by NPR.

To stem the bleeding and capture back some of the money the racial wealth gap costs us, we must seek out the most fertile ground for righting wrongs that are well documented through the last several generations of this country. We must look at corporate America.

Where corporate diversity comes up short
Large companies have benefited and continue to benefit from structural inequality. Whether it's through segregated pools of capital that have enabled them to get good rates from different types of banks, or the ability to pay workers of color lower wages, the largest US corporations have benefited either directly or indirectly from the racial wealth gap.

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Nearly all major U.S. companies — roughly 98% — have a diversity program, according to a report by Boston Consulting Group. However, these initiatives have largely failed to live up to their promise. A full quarter of the people of color at those companies reported no benefits at all. A separate McKinsey study found that one in three Black employees feel unappreciated at work, a reality that then leads them to quit at higher rates.

Fixing this problem requires greater accountability. Corporations with the resources should make an effort to both research and publicize differences in compensation based on race. Being transparent about the pay and benefits of your workers goes a long way toward leveling the playing field within your company and showing your commitment to meaningful equality.

Despite the challenges and difficulty of apples-to-apples comparisons, the presence of racial disparities is still revealing. Studying the earnings of vice presidents, for example, can point you to disparities among employees with similar work experience and help you identify the need for corrective raises.

Employers should also take steps to avoid reinforcing existing pay disparities. One of the insidious ways inequality creeps into the hiring process is the use of a would-be employee’s prior compensation in calculating pay. Labor market discrimination can result in Black workers commanding far less than whites with the same qualifications, and that disparity compounds over time. Salaries should be set using transparent standards as opposed to borne out through an imbalanced negotiation process.

The benefits of closing the racial wealth gap
Closing that racial wealth gap inside your business has numerous advantages, whether it's your benefits standing or productivity.There are lots of options for companies that are committed to this path.

Take retirement, for instance. There are yawning disparities between Black retirement savings and that of their white counterparts. Companies match up to a certain amount, but employees of color often need the extra liquidity more than their white colleagues. Black workers will opt to have a little more in their paycheck, versus putting money towards retirement.

The Center for Retirement Research at Boston College found the typical Black household approaching retirement had 46% of the retirement savings of the typical white household in 2016. That was before the pandemic placed added pressure on household budgets.

Benefits account for 32% of an employees’ total compensation, according to the Bureau of Labor Statistics. But more than 50% of African American workers are not participating in a retirement plan at work, essentially leaving money on the table. These are all the ways in which the structures in place in corporate America sustain and support the racial wealth gap. Companies have to actively work to dismantle it.

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It’s critical that companies recognize employee differences and that race remains the most accurate predictor of wealth in this country. They must challenge the notion of race-blind policies in the face of abundant evidence of the impact of race on wealth creation.

In addition to simple acknowledgment, employers must also tailor services to their employees that recognize these facts for example, through interventions that encourage employees of color to max out their 401k by illuminating the benefits of an investment that compounds.

Incorporating different cultural perspectives in employer communications about retirement plans could resonate with diverse groups, according to research conducted by Ariel Investments.

Benefits that acknowledge the realities of racial disparity should in no way introduce unfairness in the workplace. If companies are committed to promoting equity within their ranks, they need to recognize the one-size-fits-all approach reinforces the status quo.

In order for any of this to work, people must first acknowledge that there is an infrastructure in place that benefits some to the exclusion of others. Companies are already saying they want to recruit and retain people of color. But the data shows that’s just not enough.