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What’s the Real Cost of DEI?

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In today’s diverse, dynamic work world, employers increasingly recognize the transformative power of diversity, equity, and inclusion. Still, concerns often arise about the cost of DEI initiatives. The best answers consider benefits as well as costs. In other words, if you want to build a compelling case, focus on business value. But what exactly does that look like?

To make sense of it all, let’s dig deeper into DEI’s true value. This article sheds light on the remarkable return on investment you can achieve with a wholehearted commitment to DEI.

The Benefits of DEI

Consultants at McKinsey have conducted extensive research on the impact of gender and ethnic diversity on financial performance. They found that companies with diverse executive teams are 25% more likely to experience above-average profitability. This finding demonstrates a clear link between DEI and financial success.

Another example underscores the impact of diversity on customer experience. Salesforce, a leading customer relationship management platform company, is known for its strong commitment to DEI. But this didn’t happen by accident. In 2020, Salesforce revamped its talent acquisition strategy and training programs to reduce bias and expand minority employment opportunities.

Within a year, the company more than doubled its hiring rate among marginalized communities. In addition, internal research revealed that employees from these diverse groups became more engaged and contributed to higher customer satisfaction ratings.

How much should your organization invest to become more ethical and profitable? Let’s explore….

The Cost of DEI

Diversity budgets come in all shapes and sizes. They range from a modest $10,000 to a mind-boggling $216 million. But the sweet spot lies at a median budget of $1.2 million. 

When allocating funds to increase workforce diversity, you can prioritize specific business activities (training programs, recruitment, recognition) or functions (HR, Marketing, Community Relations). 

For smaller organizations with fewer than 1,000 employees, it is feasible to initiate DEI efforts by assigning specific responsibilities to existing staff members. For example, you could allocate about 50% of an existing employee’s role (such as an HR project manager), to oversight of DEI initiatives. This makes it possible to integrate DEI responsibilities into your workflows without creating a dedicated role or team.

However, in larger organizations, it’s crucial to establish clear ownership of DEI with a dedicated role or team. This ensures that DEI efforts receive the necessary focus and resources to drive meaningful change.

At the average Fortune 1000 company — with a workforce of 34,000 people and revenue of $15 billion — the DEI budget is significantly larger than other companies require. For a smaller organization — with 2,ooo-10,000 employees — a reasonable estimated budget for establishing a DEI program is likely to range from $50,000 to $300,000.

But no matter what your company size or DEI budget, the key is to spend that budget effectively. How should you allocate available funds? Let’s look closer…

Structuring a DEI Budget

The range of DEI expenses varies, depending on numerous factors, such as an organization’s size, industry, geographic location, and scope of DEI initiatives. It’s important to note that there is no fixed or universal standard for DEI budgeting. Each firm faces unique financial realities and priorities.

Now, let’s break down ways to distribute your budget across key areas:

1. Personnel Expenses

This includes any costs associated with hiring and maintaining a dedicated diversity and inclusion team. It may include salaries and benefits for DEI professionals to develop your strategy, implement initiatives, offer guidance, and provide support.

2. Training and Education

This covers expenses for design, development, and delivery of diversity and inclusion training programs, workshops, and seminars. It can include the cost of external trainers, development of training materials, e-learning platforms, or subscription fees for diversity and inclusion training resources. Investment in engaging, transformative training programs varies widely, from $30,000-$150,000.

3. Recruitment and Branding

To promote diversity and inclusion, budgeting for recruitment and hiring initiatives is essential. This may include expenses for advertising on diverse job boards, attending job fairs that target underrepresented groups, engaging with recruitment agencies that specialize in diverse talent, or implementing software and tools that help reduce bias in the hiring process. Companies usually set aside $10,000-$30,000 for DEI-focused recruiting and branding initiatives.

4. Employee Resource Groups 

Employee resource groups can foster a sense of belonging and provide a platform for underrepresented employees. But you’ll need a budget to establish and sustain these groups. This can include funding for ERG events, activities, resources, and initiatives that promote DEI within your organization. Employers often allocate $10,000-$30,000 for this line item.

5. Policy Development and Implementation

This ensures that your organization’s policies align with DEI principles. It may involve expenses for external experts, legal consults, or HR DEI specialists to review, update, and create relevant policies. However, you can manage this process without extra expenses. These tips can help:

  • Review your existing policies and practices to identify potential biases or barriers. 
  • Make necessary adjustments to ensure inclusivity across various functions and responsibilities, such as hiring, promotion, and performance evaluation. 
  • Encourage transparency and accountability in decision-making to prevent bias and discrimination.

6. Data Collection and Analysis

Investing in data collection and analysis tools enables organizations to track DEI progress effectively. Budgeting for these resources may include expenses related to software, surveys, and data analysis tools. It may also include the cost of consultants to conduct audits and assessments.

7. Community Partnerships

To build external relationships and demonstrate a commitment to DEI beyond the workplace, employers often allocate a portion of their budget to community engagement and partnership programs. These are common steps:

  • Look for external organizations or community groups that align with your DEI goals.
  • Consider how these efforts can open doors for additional expertise, resources, and networking opportunities.
  • Collaborate with appropriate groups to define joint initiatives, such as workshops, panel discussions, or mentoring programs. 

A budget of $5,000-$50,000 can help drive effective partnerships or sponsorships.

8. Ongoing Evaluation and Measurement

Budgeting for ongoing evaluation and measurement is crucial because it ensures that you can determine the impact of DEI initiatives. This may include funds to conduct surveys, audits, or focus groups. It may also include the cost of hiring external consultants to evaluate your company’s progress.

Meanwhile, you can save money on evaluation activities by regularly measuring DEI ROI.

The ROI of DEI

To showcase the value of your DEI efforts, you’ll want to estimate ROI. Follow these steps:

1. Identify Measurable Objectives

Start by defining clear objectives for your DEI initiatives. These objectives should align with your organization’s overall goals and values. For example, you may aim to increase employee retention, enhance innovation through diverse perspectives, or improve customer satisfaction and loyalty.

2. Determine KPIs

Select specific key performance indicators (KPIs) that align with your objectives. These metrics should be quantifiable and trackable over time. For instance, you could measure employee satisfaction and engagement, diversity representation at various levels of the organization, or customer feedback related to diversity and inclusion.

3. Establish a Baseline

Before implementing DEI initiatives, establish a baseline measurement for each selected KPI. This provides a starting point, so you can measure subsequent progress. The easiest way to do this is to gather and analyze available data from existing HR and business systems and programs. You may also want to collect and analyze relevant data by conducting preliminary surveys, assessments and interviews.

4. Track Progress and Impact

As you implement DEI initiatives, regularly monitor and track the selected KPIs. They may include minority hiring rates, promotion rates, turnover rates, employee satisfaction scores, customer satisfaction scores, or other relevant metrics. As you measure change in each metric over time, you can follow your organization’s overall DEI progress. This trend analysis will also help you quickly identify unexpected issues that should be researched and resolved. 

5. Assign Monetary Value

By assigning a value to improvements in selected KPIs, you’re taking a vital step forward in justifying the cost of DEI initiatives. This step can be challenging, but it will help you demonstrate the tangible benefits of your efforts. For example, you could estimate the cost savings associated with reduced turnover, or the potential increase in revenue resulting from improved customer satisfaction and loyalty.

6. Compare Investments and Returns

Next, estimate ROI by comparing tangible DEI costs (financial resources, time, and effort) with the monetary value you’ve assigned to improvements you’ve observed. In other words, subtract actual costs from tangible benefits. Ideally, the result of this calculation will be a positive value (benefits – costs = net benefit).

7. Consider Qualitative Impacts

While ROI calculations often focus on quantifiable metrics, it’s also vital to consider qualitative outcomes. In other words, for some business endeavors, the overall positive impact can far exceed the result of a straight cost/benefit equation. Look beyond the numbers to consider the importance of qualitative benefits such as a more vibrant work culture, improved employee morale, enhanced brand reputation, and stronger relationships with diverse communities. Goodwill may be intangible, but it is a powerful business asset.

A Final Note on the Cost of DEI

Some companies have struggled to demonstrate the value of their DEI initiatives. However, with thoughtful planning and an ongoing commitment, it is possible to develop an effective working budget and successfully demonstrate ROI.

Although the upfront cost of DEI initiatives may seem steep, organizations can experience tangible benefits in the long run. But the true value of diversity, equity, and inclusion actually goes beyond financial success. DEI has the potential to elevate your work culture, customer relationships, and brand position in ways that can transform your organization for the better.

Photo: Josh Calabrese

Empathy, Action: What HR Can Do Now

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Recently I published an article on Forbes.com about the elephant in the room. It was one of those pieces I had to do. I had to go out on a limb and just say it. 

We talk about diversity all the time — and on TalentCulture we’ve published many articles on improving diversity and inclusion. One offered seven tips on “managing diversity” in the workplace, and included wisdom from people working on the front lines of diversity, including diversity and inclusion consultant and author La’Wana Harris and Amy Cappellanti-Wolf, CHRO at Symantec. The post listed ways to improve more than manage, including building pipelines to more diverse talent, and letting go of seeing diversity not as a state of being but a buzzword. The step that struck me the most was examining policies to root out systemic inequality. As Harris noted, “Workplace policies, systems and processes can disproportionately impact historically marginalized populations.”

Of course, she’s right. But what strikes me now is that she didn’t put it in the past tense then, and it wouldn’t be in the past tense now. Between that post and the article on Forbes is the better part of a year, and a lot has happened to say the least. We’ve witnessed the murder of African-Americans at the hands of police and learned of one in which she was killed in her house, in her bed, and by mistake. You don’t usually see me get into these kinds of details, but the circumstances are so shocking I think they bear repeating, and repeating again. And we’ve seen — and millions have participated in — some 21 days and counting of protests spurred by outrage. 

AI and VR: Tools for Fairness

The one piece of good news is that we are being forced to reckon with that elephant. And the elephant for everyone in HR is this: we can’t improve diversity with any kind of commitment and intent if we don’t first address racism. And by addressing racism, I mean working as hard as we can to undo it in our own workplaces. It means looking hard at what we produce and offer, and asking whether it’s helping or not. IBM recently put the brakes on its facial recognition program. As CEO Arvind Krishna said, “We believe now is the time to begin a national dialogue on whether and how facial recognition technology should be employed by domestic law enforcement agencies.” He went on to note that AI systems need to be subject to far more scrutiny regarding bias. And that’s something that’s come up again and again, in a hiring context, on this site.

Is that where we start? We actively celebrate technology on TalentCulture: we just wrapped the HR Tech Awards for 2020, and among the many innovations there’s certainly AI. Another innovation that came up recently is VR, and I had a fascinating discussion on a recent #WorkTrends with clinical psychologist Robin Rosenberg about how VR can help radically improve empathy among diverse work teams. The podcast focused not just on diversity but on work culture as a whole — but it’s the potential to decrease unconscious bias, microaggressions and intolerance that stays with me. If we can put on a headset and literally experience what that feels like to someone else, maybe it should be part of everyone’s training — make it a required component of onboarding or skill development.  

Undoing the Status Quo

Do I expect my clarion call on Forbes to have an affect? Perhaps it will. Sometimes a post goes viral for reasons completely beyond our control, as when I talked about emotional intelligence and leadership just when EQ was getting on our radar, or more recently, when I predicted the key trends we’d see in 2020. (I’m lucky to have great readers, and grateful.) In the trends article, I mentioned a shift to tending rather than managing our workforce, advocated for leaning harder on AI for recruiting so long as it was programmed without bias, and pointed out that more of us would be working remotely. But that was written well before the pandemic threw up all into a tailspin, or survival mode, or just home, before the nation exploded, and before it became clear that we tend to stay entrenched in our own status quo. 

But we can’t accept the status quo anymore, and this is the opportunity to snap out of it. I wasn’t surprised when 63% of respondents to our June 3 newsletter survey said they’d experienced racism in the workplace either directed at themselves (39.7%) or a coworker (23.8%). But I was shocked to find out that less than 5% had reported it. HR, I’m looking at you.

HR Has a Role to Play

So let’s have real conversations about the bias that may be stuck within our work cultures (conscious or unconscious). Let’s push back against complacency or just inertia when it comes to examining and improving workplace policies. Let’s keep asking the hard questions — we just ran a follow-up survey question this week, asking who is now having discussions about racism among their coworkers. I’m very interested in those results. I’d like to challenge the top innovators to find the best means to systematically detach AI from potential bias. I’d like to know who’s reviewing accounts of unfair treatment in their workplace, and having a new reckoning to set things right. 

In the end, every business will be better and more sustainable in the future if it works to be more equitable, diverse, and fair in the present. Knowledge is power, as we well know. And HR is a field that wants to evolve — and indeed, it can’t stop evolving. We’re made for this. So let’s get to it.

Lindsay Henwood

U-Haul’s Nicotine-Free Policy: Fostering Wellness, or Cutting Costs?

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If a company eliminates applicants because of an unhealthy behavior, are they fostering workplace wellness, or cutting healthcare costs? Are they promoting a culture of healthy employees, or discriminating against potential candidates? Or is it somewhere in between?

With U-Haul’s new smoke-free policy, workplaces across the country have to ask themselves where the policy falls.

U-Haul’s New Policy

On December 30th, U-Haul International announced that beginning February 1, 2020, it would implement a nicotine-free policy in 21 states without protections for smokers’ rights. As of February 1, it will become one of the first major companies to decline applicants who are nicotine users.

The policies will be enacted in:

  • Alabama
  • Alaska
  • Arizona
  • Arkansas
  • Delaware
  • Florida
  • Georgia
  • Hawaii
  • Idaho
  • Iowa
  • Kansas
  • Maryland
  • Massachusetts
  • Michigan
  • Nebraska
  • Pennsylvania
  • Texas
  • Utah
  • Vermont
  • Virginia
  • Washington

According to the company, applicants in these 21 states can expect to see the anti-nicotine policy on their job applications. They will be questioned about their nicotine use and may be required to undergo nicotine testing in certain states before they can be deemed hirable.

The policy also covers e-cigarettes and vaping products. Any current U-Haul employees who are nicotine users will be grandfathered into the policy, offering nicotine cessation programs to assist them.

The goal of the policy, nominally, is to further U-Haul’s goal of promoting one of the healthiest corporate cultures in the United States and Canada.

Policy Implications By the Numbers

In Arizona alone, where U-Haul is headquartered, the implications of the policy are significant.

U-Haul employs 30,000 workers in the United States and Canada. In Arizona, it is one of the state’s largest employers, with a workforce of more than 4,000. It is also legal in Arizona to discriminate against nicotine users in the hiring process.

That might be good news for people exposed to nicotine, but not for applicants who use nicotine.

As of 2017, 15.6% of adults in Arizona smoked cigarettes, while 5.3% of adults used e-cigarettes and 2.8% used smokeless tobacco. Out of a population of roughly 7.1 million, that’s over 1.1 million adults who smoke cigarettes, 376,300 who use e-cigarettes, and 198,800 who use smokeless tobacco.

All of whom would no longer be eligible for employment with U-Haul — which is, again, one of the largest employers in the entire state of Arizona.

The Public Health Implications of Smoking

Of course, the public health implications of smoking and nicotine use are nothing to sneeze at. Nicotine is known to be a dangerous and highly addictive chemical, and it is by no means the only chemical associated with smoking. Cigarettes contain more than 5,000 chemicals, hundreds of them harmful to human health, including:

  • Arsenic
  • Benzene
  • Cadmium (a metal used to make batteries)
  • Formaldehyde
  • Tar

Smoking has been linked to 90% of lung cancer cases. Almost one-third of coronary heart disease deaths are the result of secondhand smoke. 

Nicotine itself is known to increase blood pressure, narrow the arteries, and contribute to hardening arterial walls, which in turn can lead to heart attacks.

It is, in short, one of the main preventable causes of death in the United States.

The risks are also high for anyone around secondhand smoke: people exposed to it are 25% to 30% more likely to develop heart disease.

Public Health, or Lower Healthcare?

U-Haul posits the policy as part of a shift toward corporate health and wellness, asserting that the shift toward a healthier workforce is an investment in the wellbeing of their team members. The policy, according to U-Haul, will help reinforce a wellness program that encourages workers to focus on four areas: health, fitness, nutrition, and mindset.

However, the company also noted that the policy was part of a continued effort to decrease healthcare costs.

Are There Cost Benefits? 

Workplace wellness is an industry with $8 billion in annual revenue in the United States. Almost half of all employers with at least 50 employees offer a workplace wellness program. Of those that don’t have a program, half have said they plan to introduce one.

The popular story among corporations and researchers is that these efforts reduce healthcare costs for employers. A 2010 review by a Harvard economist stated that wellness programs return $3 in healthcare savings and $3 in reduced healthcare costs for every $1 invested.

But is that actually the case?

Research by the RAND Corporation, including data from 600,000 employees from seven employers and 10 years of data from a Fortune 100 employer, found that wellness programs have little, if any, immediate impact on employer healthcare costs.

Generally, wellness programs have two components: lifestyle management (which focuses on employees with health risks such as obesity or smoking), and disease management (which focuses on employees who already have a chronic disease). Together, the two programs generate $30 in savings per member per month. But 87% of those savings came from disease management, even though only 13% of employees participate in disease management — compared to 87% participation in lifestyle management.

One might make the case that disease management can result from diseases caused by smoking, but U-Haul’s policy targets lifestyle issues and prevents nicotine users from being hired in the first place, thereby precluding their ability to participate in disease management programs.

In short, it’s hard to say whether U-Haul’s policy can save the company healthcare dollars in the long run.

Loopholes in the Policy That Penalize Workers

But what we can say is that the policy penalizes nicotine users, including those who are trying not to use nicotine.

The program as presented makes no exceptions for nicotine users who are trying to quit smoking. And while nicotine users can remain smoke-free, 30% of them do so with the aid of some kind of nicotine product.

What about quitting with nicotine-free products? That’s not as easy as it sounds. The FDA has only approved two nicotine cessation products that don’t contain nicotine: Chantix and Zyban.

And yes, nicotine replacement products and medicines do show up in nicotine screenings. Nor does the policy seem to differentiate between smokers and those with nicotine in their system due to secondhand smoke, or between cigarettes and nicotine products with a lower risk to bystanders, like smokeless tobacco.

Balancing Wellness and Fairness

Is the policy good for worker health? From the perspective of removing harmful substances from the workplace, yes.

Is the policy fair for workers? From the perspective of smokers and people with smokers around them, not so much.

That U-Haul’s policy lacks any differentiation implies that the company’s stance is a moral one more than a health one. Given that the healthcare cost benefits to the employer seem unclear, it begs the question: How much employers can force their own policy views to restrict the lives of their own employees?

It’s not a bad idea to discourage unhealthy habits per se. The issue is doing it in a productive and nondiscriminatory way. U-Haul’s broad policy is a bit unclear in that regard, so we’ll have to watch how this plays out.

Why The Oscars Diversity Issue Matters to All Employers

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Sunday night was the 88th broadcast of Academy Awards. And, even if you didn’t watch it, then you know that not one person of color was nominated for an Oscar in the categories of best actor or actress in either a primary or supporting role.

The host was Chris Rock. And, with humor and perspective, he nailed it…effectively by reframing it.

The absence of award nominations for actors of color was less about the nominations themselves and more about the absence of acting opportunities for actors of color. If you don’t have access to the opportunities, then it goes without saying you cannot win.

To quote Chris Rock:

“What I’m trying to say is it’s not about boycotting or anything. It’s just we want opportunity. We want the black actors to get the same opportunities as white actors. That’s it. And not just once. Leo gets a great part every year. All these guys get great parts all the time. But what about the black actors?”

Rock’s comments apply not only to black actors but also to Asian American and Hispanic American actors. Why are there not more roles for actors who are Asian American or Hispanic American?

Now, you may be tempted to say: who cares about Hollywood! Avoid that temptation; access issues are not limited to the entertainment industry.

Outside of Hollywood, we see a glaring absence of diversity in many senior leadership teams. And, there also is a clear gender pay gap in many organizations, even if people debate the degree of the gap.

I would suggest that, in many situations, what we see is the symptom of the underlying problem: the absence of meaningful access to assignments and opportunities that create the credentials for promotions and higher pay. How do we address the access problem?

Well, that goes beyond the scope of this brief blog. But the first step is acknowledging the root of the problem so that we can focus our corrective action there.

Yes, this is about fairness. Fairness always matters.

But there also is the business imperative. Diverse leadership teams are more successful, and you cannot get to the top unless you have had equal opportunity to access along the way.

Sunday night, Chris Rock rocked it with his root cause analysis. The success of our own organizations will depend, in part, on how we respond to the clarion call to focus on equal access opportunity.

A version of this post was first posted on The Society for Human Resource Management (SHRM) blog on February 29, 2016.

photo credit: the giant Oscar statue at the Kodak Theater  via photopin (license)