Diversity and Performance Management

Fairness is fundamental to a diverse and inclusive company culture, yet according to Gallup, only 29% of employees strongly agree that their performance reviews were fair.

And it only gets worse once you start digging deeper into the data. For example, one study found that African Americans and women were less likely to get good ratings, and that ratings were more favorable for people that shared the same race as the rater.

Employee engagement is directly tied to performance results. The more engaged the employee, the more likely they are producing results that outweigh their cost to the organization. In a workplace where diversity, equity, and inclusion are lacking, at an absolute minimum, this will impact those on the “outside.” Those employees who have picked up on the personal or systemic biases living within individuals and organizations, those who do not feel utilized or leveraged, or those who know they do not have a real seat at the table, are not engaged and, therefore, are more than likely not producing the best results.

There is also the risk of a self-fulfilling prophecy. Our biases create an invisible wall that prevents deeper professional relationships with those who the bias is against. When healthy workplace relationships are not created between the two parties, coaching, mentoring, and professional development are unlikely to happen, resulting in the person who is receiving the bias not having an equitable chance at career advancement and/or business impact. Not to mention the bias receiver (the person who the bias is against) is likely feeling dissatisfied, frustrated, or stuck and unable or unwilling to perform at their optimal level. When performance review time comes, it is doubtful they will be scored as a star performer. You cannot build a healthy relationship when biases are present. To add another layer, we must be extremely careful that performance management is not solely based on the strength of the relationship between the two parties but on the results the individual achieves and the impact on the organization.

  1. Set clear goals to base performance on facts, not opinion

If expectations are unclear, employees may feel like they’re not evaluated based on their performance. Instead, factors unrelated to their contributions, such as gender or age, seem to creep into their assessment. Of course, a manager could also simply have a bad day and therefore give more critical feedback.

Defining and assessing performance based on specific objectives and clearly articulated behaviors ensures that the focus is on what people actually contribute to the organization. And it limits the tendency to base performance on a gut feeling that’s subject to biases and prejudices.

  1. Use multiple feedback sources to limit bias

Basing performance evaluation on one person’s perception at one point in time makes biased reviews much more likely. Similarity bias makes us devote more attention to people similar to them. As a result, you might have to work harder for recognition in your performance review if your manager is an Ivy League graduate, and you’re not.

Adding 360-degree reviews to your performance management process ensures you include multiple sources (managers, colleagues, reports) and reduces the likeliness of biased reviews. In addition, a culture of ongoing feedback helps tackle recency bias. The more frequent the feedback and the more diverse the group of people it’s coming from, the more balanced a view you get of someone’s performance.

  1. Nudge people into using inclusive language

Even with the best intentions, words often convey prejudices, stereotypes, and discrimination. For example, words can suggest expectations or limitations related to their social group. The sentence “I’m surprised you stay on top of all the latest trends in the industry, especially given your age” may sound like a compliment. But more importantly, it suggests age-related limitations and has no place in an employee evaluation.

To avoid discrimination of any kind, remind staff to check their language when talking about other people’s job performance. An easy way to embrace diversity and inclusion (D&I) through words is to include a helpful note in all performance review and peer feedback forms.

  1. Reinforce inclusive behaviors

Role models are a prerequisite for inclusive behaviors to spread across your organization. Also, employees who don’t associate these desired behaviors with positive responses tend to put in less effort.

So if you want a culture of inclusion, reinforcing inclusive behavior is key. Encourage staff (and especially leadership) to keep their eyes open for inclusive behavior of their co-workers and to recognize it publicly when they see it. For example, someone who actively seeks input from people who don’t usually contribute much in meetings should be reinforced in that behavior. If you use Small Improvements, you can add a custom “Includer” badge to our Praise feature that people can use to give kudos to inclusive colleagues.

  1. Ask employees how they feel

You might think team members feel welcome at work perhaps because you do but actually, they don’t. The only way to find out if people feel included is to ask them.

Engagement or pulse surveys are an effective way to gauge people’s perception of diversity, inclusion, and belonging regularly. Consider using a pulse survey question template that measures the state of D&I in your organization.

A great way to start checking for biases on a deeper level is to simply be aware of what they are and how they can manifest in the workplace. Here’s a list of some of the most common performance management biases from the experts at Diversity Best Practices.

  • Halo and Horn Bias: Like an availability bias, this bias comes from a good or bad first impression we let come before the whole picture of a person’s performance.
  • Availability/Recency Bias: The most recent, or most memorable moment crowds out the rest. This bias slants a review to one or two big moments and makes it much less holistic.
  • Confirmation Bias: When we unknowingly focus on the evidence that supports our worldview and ignore evidence that counters it. Sweeping generalizations like “bad employees have disorganized desks” can come from confirmation bias.
  • Implicit Stereotyping: Our preconceived notions change how we see someone’s performance. Racism, sexism, ableism, and other ‘isms’ all come into play here.
  • Affinity Bias: We see people like us in a more positive light and it seeps into how we judge their performance.

Diversity and Training

Diversity training is any program designed to facilitate positive intergroup interaction, reduce prejudice and discrimination, and generally teach individuals who are different from others how to work together effectively.

Diversity training is training delivered to make participants more aware of diversity issues in the workplace, their own beliefs on diversity, as well as provide skills to help them interact, collaborate and work more closely with people that have different qualities to their own.

Diversity training is often aimed to meet objectives such as attracting and retaining customers and productive workers; maintaining high employee morale; and/or fostering understanding and harmony between workers.

Despite purported and intended benefits, systematic studies have not shown benefits to forced diversity training and instead show that they can backfire and lead to reductions in diversity and to discrimination complaints being taken less seriously.

Findings on diversity trainings are mixed. According to Harvard University sociologist Frank Dobbin, there is no evidence to indicate that anti-bias training leads to increases in the number of women or people of color in management positions. A 2009 Annual Review of Psychology study concluded, “We currently do not know whether a wide range of programs and policies tend to work on average,” with the authors of the study stating in 2020 that as the quality of studies increases, the effect size of anti-bias training dwindles.

According to a 2006 study in the American Sociological Review, “diversity training and diversity evaluations are least effective at increasing the share of white women, black women, and black men in management.” A meta-analysis suggests that diversity training could have a relatively large effect on cognitive-based and skill-based training outcomes. An analysis of data from over 800 firms over 30 years shows that diversity training and grievance procedures backfires and leads to reductions in the diversity of the firms workforce. A 2013 study found that the presence of a diversity program in a workplace made high-status subjects less likely to take discrimination complaints seriously.

Alexandra Kalev and Frank Dobbin conducted a comprehensive review of cultural diversity training conducted in 830 midsize to large U.S. workplaces over a thirty one-year period. The results showed that diversity training was followed by a decrease of anywhere from 7.5–10% in the number of women in management. The percentage of black men in top positions fell by 12 percent. Similar effects were shown for Latinos and Asians. The study did not find that all diversity training is ineffective. Mandatory training programs offered to protect against discrimination lawsuits were called into question. Voluntary diversity training participation to advance organization’s business goals was associated with increased diversity at the management level; voluntary services resulted in near triple digit increases for black, Hispanic, and Asian men.

A 2021 meta-analysis found a lack of high quality studies on the efficacy of diversity training. The researchers concluded that “while the small number of experimental studies provide encouraging average effects. the effects shrink when the training are conducted in real-world workplace settings, when the outcomes are measured at a greater time distance than immediately following the intervention, and, most importantly, when the sample size is large enough to produce reliable results.”

From a business perspective, diversity training is seen to have a number of benefits such as increased collaboration and relational skills, protecting against violations of discrimination legislation (therefore reducing the firm’s risk profile) and empowering those from underrepresented groups to feel more confident and valued in the workplace.

Despite these perceived benefits, diversity training attracts significant criticism some question its ability to drive change. According to some critics, it may be counterproductive because it reinforces the differences between people rather than celebrating them.

Diversity training can be divided into two categories:

Skill-based training

This deals with developing employees’ proficiency in handling diversity in the workplace. Various tools are used to take the employees from the awareness to the proficiency stage. The tools used help in improving employees’ interpretation of cross-cultural differences, communication with people from different cultures, and adaptability.

Awareness-based training:

This type of training is generally used as a sensitizer for employees. It deals with making employees aware of the importance of diversity in business. It also makes employees aware of their prejudices and cultural assumptions about others. The training uses case studies and experiential exercises as the method of training implementation.

Mentoring for Diversity

In a corporate world, diversity in the organization does no longer exist; however, in many organizations wants to maintain a collaborative competitive advantage in a global environment. Many organization mentor’s minority groups and deploys wide range of knowledge, skills and motivate the talented employees from different cultural backgrounds, sexes, or races/ethnicities to perform their best in reaching organization goals. Many companies have a wide array of cultural workforce where employees showcase different perspectives and skills to the table. A major challenge organization faces during the implementation of diversity training to employees to collaborate and work together to achieve a common goal of an organization.

Diversity audits

Diversity Audits are a very daunting task for HR which are formal assessments that evaluate the current situation, they are mostly involved in managing employee management attitudes such as their periodical review related to policies & procedures. Hence the diversity audits serves as a critical to manage the thought process of the employee within the organization.

Diversity and Work life Balance

To create an environment that encourages the realization of diversity and inclusion, Need to promoting work-life balance in two core ways: Enriching our Family-Friendly System and Working to transform work styles.

The globalization we’ve seen over the last two decades has led to a profound transformation of society at every level we imagine. It has also had major repercussions on the present in economic, social, technological, and legal dimensions, to name a few.

These social changes have prompted companies to modify their way of relating to their environment, including their own employees.

Diversity and inclusion (D&I) management at organizations has been on every company’s management and talent management agendas for years. Beyond the fact that these concepts are in vogue.

Workplace diversity has become a growing concern within organizations. Managers are now challenged with learning new ways to effectively communicate the importance of embracing different races and ethnicities. Diversity encompasses many different characteristics including age, gender, ethnicity, religion and disabilities (Robbins). As of late, age has become more of a concern as the baby boomer generation begins to reach retirement age; many are not retiring early but instead are working well into their seventies.

Unfortunately for those baby boomers, the number of retirees decreased during the 2008-2009 recession mostly due to economic struggle. People cannot afford to retire, perhaps because they did not save enough for retirement or had to dip into their retirement fund to survive earlier in life. In addition to age discrimination, gender discrimination is another common diversity issue. According to “Organizational Behavior,” as of 2000, more women are working full time, have more education, and have started to close the earning gap between men and women.

Adjust performance expectations and be mindful that well-known biases in performance evaluations could be exacerbated in this crisis. What are appropriate criteria for evaluation in this “new normal”? If the answer is ambiguous, research suggests that the probability of bias will increase and further disadvantage women, people of color and others. If organizations are continuing with their performance review cycles, they should be especially mindful of providing clear criteria for managers. Several companies we talked to in our focus group are simply delaying or canceling performance review cycles.

Paying attention to the role of managers, and providing them with the right resources and skills to support employees is critical. In our research, we see that managerial decisions and behaviors are at the crux of inclusion and equity. Managers may not be used to leading a remote team and being in charge of crisis management, so they need access to frameworks and research-based insights. Providing tools and infrastructure to work from home safely is also important. At Stanford, trainings on using telework software, for example, have been useful.

If you are don’t know what work life balance is, you won’t be able to realize why it’s so important. A common assumption is that individuals who would like more “balance” aren’t necessarily as driven or interested in building a career. Many people who want more balance, enjoy working hard, have ambitions, and even want to achieve high levels of success. While it’s not likely to have a balance or an equal equation between work and life. It’s much more about:

  • Feeling like work has an impact on the workplace as well as in personal life. These feelings do more to connect with other and provides more fulfillment
  • Having the ability to make time for important things; work and personal priorities
  • Feeling calmer and more focused instead of scattered and out of control
  • Leaving work with energy to spend on other things.

Employee Engagement

According to Gallup, around 34% of U.S. workers are engaged, which is described as those who are involved in, enthusiastic about and committed to their work and workplace.  Happy employees are more engaged and loyal.  Workplace morale in general increases and that results in improved communication and better teamwork. Employers can see:

Performance and Increase in Productivity

By reducing stress-levels it increases the ability to focus, be attentive and offer new ideas and solutions.  Higher levels of satisfaction increase productivity.

Cost Reductions / Savings from lower employee turnover

Retention is higher because employees are more likely going to want to stay where they are happy and engaged.

Lower absenteeism

Time to take care of one’s self results in improved mental, physical and spiritual health. Employees are not as likely to take off as much time for sickness or workplace injuries.

Positive Branding

Many companies offer employees incentives to recruit good employees from people they know.  Those companies who value work life balance for their workforce will become known as a great place to work. More people will be interested in working for a company that values and cares for their employees.

Flexibility and/or Virtual Work Arrangements

Many companies are offering the opportunity for employees to work outside of their place of business.  For many reasons, “Smart Offices” are becoming more common and employers are more in favor or employees off-site work arrangements.  In addition, company benefits have to align with values that demonstrate we are, “taking care of our people”. Here are some of the ways in which employers are responding:

  • Meditation, yoga, etc. Workshops
  • On-site or childcare voucher programs
  • Free or highly discounted gym memberships
  • Sabbaticals; paid or unpaid
  • Generous maternity, paternity, adoption, and paternal leave benefits.

Workplace Culture

  • Model appropriate behavior. Ensure employees that it is really o.k. to take advantage of the work life policies. Telling employees to enjoy their evening, weekends or vacation is great. What is better is to “walk the talk” and constrain yourself from sending emails and calling employees during these times away from work.
  • Avoid sending mixed messages. Don’t talk about policies or have them in an employee handbook when they aren’t true. If you demonstrate that vacations are truly vacations, then be sure not to make employees feel like they are doing something wrong or that they should feel bad about taking a vacation.
  • Create guidelines and expectations. Train management and employees on these policies and expectations. While managers may communicate in some way or another with employees after work hours without needing an immediate response, employees are more likely to feel pressured to respond to after work hours calls or emails.

Steps to Recruiting and Retaining a Diverse Workforce

Organizations that embrace diversity are more innovative and do a better job of meeting community needs. A lack of diversity can inhibit your organization’s creativity and even make you the focus of public criticism.

There are two main categories of diversity:

  • Acquired diversity: Factors such as education, experience, values, skills and knowledge.
  • Inherent diversity: Demographic characteristics like race, sex, and age.

Workplace diversity is defined as understanding, accepting, and valuing differences between people of different races, ethnicities, genders, ages, religions, disabilities, and sexual orientations, as well as differences in personalities, skill sets, experiences, and knowledge bases.

Strategies:

Use a personality assessment to recruit more diverse candidates The usual criteria for recruiting candidates what company they worked at, what school they went to, who they’re connected with can often work to decrease the diversity of the candidate pipeline. Fortunately, a valid and reliable personality assessment is a great tool to measure candidates’ personality traits, motivations, and skills.

Personality assessments increase workplace diversity because they don’t show adverse impact, that is, personality scores do not differ for minority group members.

Offer testimonials from current employees

Testimonials let your employees speak about the ways your organization values diversity and lives it through its culture and actions. These personal statements can help diverse job seekers feel that someone with their identity will be welcomed, supported, and successful in the workplace.

Cast a wider net

To improve your workforce diversity, you need to diversify your recruitment sources. Don’t abandon the sources that have worked. Instead, expand your efforts. Add even more career fairs, job boards, media outlets, networking events, and affinity groups, targeting those that attract diverse candidates by design.

Share your jobs in surprising ways

To recruit a more diverse workforce, go beyond the predictable job boards. Create a video or animation to show off your job opportunities and diverse workplace culture. Grab the attention of more people by sharing jobs through newer social media, like Instagram and Snapchat, or by braving live streaming video. Attend in-person community events where you can connect with people who otherwise wouldn’t have heard about your job opportunities.

Recruit through refugee, immigrant, and community groups

Workforce diversity often means embracing non-traditional talent. Recruiting refugees, immigrants, and people from distinct groups can be a boon for employers committed to diversity. Look for community groups, government agencies, staffing firms, and adult education centers in your area that match job seekers with employers.

Show diversity in your recruitment materials

Update your recruitment materials to showcase a visibly diverse group of employees. While you can be a bit aspirational, don’t stray too far from reality. Potential employees can be turned off if your materials misrepresent the true diversity in your workforce. And never manipulate real staff photos and information to alter the diversity they show.

Improve your recruitment website

If your organization is committed to diversity, your recruitment website needs to follow through on that commitment. This requires more than splashing a diversity statement somewhere. Eliminate coded language, gender bias, and insider jargon. Use your recruitment system to make sure your site is easy to use and is accessible to people with diverse abilities, linguistic competence, and access to technology.

Tap into your team’s network

Word of mouth is still one of the most effective recruiting tactics. According to a 2015 study, when employees recruit within their network, workforce diversity can improve. What matters is that the employer keeps track of word-of-mouth referrals so that one group doesn’t dominate over time. Employers can also encourage employees to spread the word to candidates with diverse backgrounds.

Bring your campus recruiting to other schools

Look beyond elite colleges to schools that have an economically and socially diverse student body. Recruit at schools that are committed to keeping education accessible and affordable and that have diversity integrated into their identity. This can include historically black colleges and universities, hispanic-serving institutions, women’s colleges, public and community colleges, and schools with cooperative education programs.

Mesh diversity with cultural fit

Diversity is more than how people look. Cultural fit is more than hiring people who think and act the same. Truly diverse and culturally vibrant workplaces will include people of different demographics, identities, backgrounds, experiences, abilities, and personalities. The key is to recruit people who are united by the values of the organization, and who can contribute to the organization’s success.

Using Technology

Blind interviews

Extending the blind resume concept is the blind interview. Companies are implementing blind interviews by removing personal identifying information from applications and getting candidates to anonymously answer job-related questions. However, the recruitment process for candidates at most organizations includes a phone screen. It’s almost impossible to anonymize a voice over a phone call unless you’re using technology that’s specifically going to do this for you.

Blind resumes

The most common blind hiring method being tested currently is to remove the candidate’s name from their resume.

The theory behind removing the candidate’s name from his or her application is that it helps recruiters make decisions with reduced unconscious biases of the candidate’s race and gender. Other identifying personal information that is being removed from resumes is graduation year, college names, and even addresses. This helps you identify high quality candidates because it enables you to more objectively evaluate a candidate’s skills, knowledge, and potential to succeed.

Resume screening using AI

Technology that uses AI is enabling recruiters and talent acquisition professionals to automate the most tedious and time-consuming part of their day: Screening resumes and Shortlisting candidates.

Automated resume screening increases diversity by replacing manual shortlisting.

This allows you to have a system that objectively and consistently applies shortlisting criteria across all candidates, which reduces problems related to compliance and discrimination.

Automated resume screening software lives inside your existing ATS that automates candidate shortlisting without disruptions to your workflow or the candidate application process.

Retain Diverse Talent

Be amazing at onboarding diverse employees

An often-overlooked part of the recruitment life cycle, onboarding is crucial to employee retention. An employee onboarding survey of over 1000 employed US workers revealed that 31 percent of people left a job within the first six months, with 68 percent of those departing within three months.

Onboarding should be more than just the paperwork done on your new hire’s first day. Effective onboarding includes properly introducing the new employee to the rest of the team, helping them navigate their surroundings, and training them on the specific tools and processes they’ll need to do their job.

Train managers to lead diverse teams

Managers need to understand that their behaviors impact their team members’ sense of belonging. Train them to become aware of unconscious biases and how to identify talent that may seem different.

Encourage them to continuously assess their processes to ensure that everyone on the team gets the same opportunities are assignments given to everyone, including those who don’t raise their hands? Motivate managers to become more inclusive by rewarding them for retaining diverse talent.

Create mentorship and sponsorship opportunities

Every employee can benefit from having someone who will help them be better at their jobs and advocate for them. Minority candidates benefit from this even more. Many organizations have mentorship programs, some specifically targeting diverse employees for this reason.

Stand in solidarity with diverse employees

Skye Parr, an attorney at Husch Blackwell, spoke on one of the law firm’s webinars of how recent events involving racism and police brutality have impacted black employees.

Develop a formal retention plan

Companies are starting to realize the value of developing a personalized retention plan. A retention plan often involves “stay interviews” check-in meetings with diverse employees to check that their needs are being met. Experts recommend having “stay interviews” at least twice a year.

Make the path to growth transparent

Make sure everyone knows what opportunities are available, and what competencies are needed to get to the next level. One example of how to do this is to make your promotion criteria public. Additionally, assess whether there are unwritten rules of career advancement at your company.

Support the creation of communities within your organization

We’ve mentioned that having friends at work makes work life happier. In the case of underrepresented employees, it can make a world of difference to have people who can help them on their journey.

Support your diverse hires in forging connections. One way to do this is by supporting employees who want to form communities based on shared identities. Ask them how you can help, what resources they need, and how they want to promote the initiative company-wide.

Address unconscious bias

We all believe we are ethical, unbiased decision makers, but studies into unconscious biases deeply ingrained stereotypes that influence our behavior prove otherwise.

Our unconscious biases influence how we hire, onboard, manage, and promote employees. Here are a few examples of how unconscious bias can play out in the workplace:

  • Ignoring a colleague or forgetting to cc them in emails.
  • Telling a female employee that they’re pushy, bossy, aggressive, or intimidating.
  • Making assumptions about a person’s role in the company.
  • Consistently leaving a teammate out of bonding activities.

Advantages and Limitations of having a diverse workforce

Workforce diversity represents both a challenge and an opportunity for business. A growing number of progressive organisations are realizing the need for valuing diversity in the workforce, so as to ensure strategic utilisation of human resources for the accomplishment of strategic goals.

Advantages

(i) An organisation or a company with well-managed diversity will solve the conflicts resulting from opposing viewpoints, into a more complete and inventive solutions.

(ii) An organisation that promotes equal employment opportunity for diverse groups will generally do better at attracting and retaining talent from all backgrounds, thereby increasing a pool of skilled employees. The differences among people lie a wide variety of talents and perspectives. The broader the range of talents and sweep of perspectives among the employees, the better would be the opportunity for the business to succeed.

(iii) Business with workforce from varied backgrounds can more effectively serve the customers, who are themselves diverse. Such employees can interact with local customers in an effective manner and pay careful attention to their customers’ sensitivities and expectations,

(iv) Companies with diverse workforce are able to present their product and services in a better way.

(v) Companies with effective diversity programs can avoid damage to their corporate reputation or costly lawsuits from charges of discrimination or cultural insensitivity.

(vi) The global market place of today demands a workforce with language skills, cultural sensitivity and awareness of national and other differences across the market in order to be successful. For example, the multinationals operate in different countries, where the cultural practices vary radically. Workforce which can fit in the cultural understanding of the country where the multinational is operating is a must.

Limitations

(i) Cultural Conflicts: Cultural differences may make an employee feel like an outsider. The other cultural groups may not accept him as a member of their groups. Such things affect the performance of the organisation adversely.

(ii) Problematic Gender Relations: Women often encounter many problems at the workplace. The difference in gender is used as a tool to exploit them and, at times, it leads to sexual harassment.

(iii) Discriminatory Treatment: Discriminatory treatment of diverse workforce by the top officials is very common.

For example, in many companies in the U.S.A., whites are generally given a preference over black in the matters of powers, facilities and promotions; in Japanese companies, Indian are not treated at par with the Japanese even if they hold a similar job profile; many companies don’t give similar wages to women employees as they give to men for the same work. Such discriminatory practices lower down the morale of the employees.

(iv) Religion/Racial differences are also a big reason of quarrels over petty issues, which, if not resolved in time, assume a bitter feud.

(v) Resistance to Change: Because of diversity, some groups of workers might resist change proposed by the management.

(vi) Where employees are parochial, there is a danger that they may form close and strong groups having same Carte, community or religion.

(vii) There is always Resistance to Change by employees. When there is diverse workforce, then the resistance becomes fierce, at times.

Workforce Diversity in India

The human resource managers in Indian organisations have to respond to a wide range of diversity issues due to a diverse workforce of varying socio-economic, ethnic and linguistic composition.

Various categories of employees in the Indian organisations include the following:

  1. Scheduled Castes (SCs) and Scheduled Tribes (STs):

The candidates belonging to scheduled castes and tribes determined by a notification of the Central Government are given preferences to the extent of 15 percent and 7.5 percent respectively in case of jobs in the government departments and public sector enterprises. Recently, some political parties have called for reservation of jobs in the private sector also for the scheduled castes and tribes.

  1. Other Backward Castes (OBCs):

The Central Government has made provisions for reserving jobs upto 27.5% in the government departments and public sector undertakings for those who belong to other backward classes. Though there is no such compulsion in case of private enterprises, they already have employees belonging to the OBCs.

  1. Disabled or Physically Handicapped Persons:

Employees whose work assignments are limited by their physical abilities have in the past been referred to an “handicapped” or ‘disabled”. Today, the more politically correct term is ‘physically challenged’ for those individuals who have hearing, speech, visual, orthopaedic, or other health impairments.

The Central Government has provided for reservation of jobs in Group C and Group D posts for the blind, deaf and orthopedically handicapped persons. Socially responsible organisations in the private sector also offer employment to the physically challenged persons.

  1. Ex-Defence Personnel:

Ex-defence personnel or ex-servicemen who are trained and disciplined may also be offered jobs in the organisations. This would increase workforce diversity is the organisation.

  1. Displaced Persons:

The people who are displaced because of acquisition of land for public purpose or because of other causes like flood, militancy, etc. may be preferred for jobs in public enterprises on humanitarian grounds.

  1. Female Employees:

The ratio of women workers at the place of work is on the rise. This has been associated with the problems of discrimination and sexual harassment. The organisations need to take steps to deal with such problems

Dimensions of Workforce Diversity

Managing workforce diversity implies creating an organisational climate in which a heterogeneous workforce performs to its best potential; without the organisation favouring/dis-favouring any particular segment of workforce with a view to facilitating the best attainment of organisational goals.

Dimensions

(i) Gender:

Male workers are usually aggressive, bold and materialistic; while female workers possess sympathy for others and are more concerned with quality of life. What is important to observe is that people of both sex have material differences in outlook, nature, habits etc. as differences between males and females are the design of God who created mankind.

(ii) Age:

People belonging to different age groups cause diversity in workforce. Young people may be enriched with health, merit, capacity for hard-work etc.; while elderly people may possess more maturity than their junior counterparts and are full of experiences of life.

(iii) Culture:

Culture is a complex of race, religion, language, social traditions and values etc. People from different cultural backgrounds may have ethnic orientations i.e. a sense of favoritism towards their nation, race or tribe, which they belong to.

(iv) Education:

In an organisation people may range from less educated to highly educated. Educated people have a broad outlook and are open-minded. They are endowed with logic and rationality and usually dislike discrimination among individuals on petty grounds of caste, colour, religion etc.

(v) Psychology:

(Psychology is the kind of mind that one has that makes one think or behaves in a particular way). In a organisation, there are people with different psychology. Some may be optimistic or pessimistic; some may be bold or timid or so on. Psychology may be a gift of Nature or a manifestation of family background or social affiliations.

Factors Increasing Workforce Diversity

(1) Expansion of the services sector: The services sector jobs, such as banking, tourism, and retailing entail lots of inter­action with customers of diverse backgrounds and cultural moorings. In order to sell to a diverse customer base, and because customers tend to prefer to buy from people of the same background, organizations these days have realized the need of a diverse workforce.

(2) Globalization of markets: To satisfy needs and preferences of global customers, organizations have to get closer to their customers. Some organizations have established a strong local presence (for example, American companies advertising their products like soft drinks) while others have forged international alliances (for example, Maruti Udyog Limited (MUL) having alliance with Suzuki of Japan for automobiles manufactures). Either way, diversity gets introduced and must be managed.

(3) Requirement of teamwork for successful implementation of business strategies: For success in business, organizations rely heavily on teamwork. Diversity is an inevitable by-product of teamwork, especially when teams are drawn from a diverse base of employees.

(4) Mergers and alliances: As mergers and alliances become commonplace, it has become impor­tant that the corporate culture of the merging entities work together. Workforce diversity, then, becomes inevitable and desirable for the success of such mergers and alliances.

(5) Changing labour market: The rapidly changing labour market is also responsible for injecting diversity in workforce. Increasing demand for knowledgeable workers and also more and more women taking up jobs add an important dimension in workforce diversity.

Positive and Negative effects of workforce diversity in workplace

Positive effects

Productivity levels improve because of diversity in the workplace.

Even when a team doesn’t like the idea of being diverse, their productivity levels can rise by more than 30%. When people have co-workers who are different from them, then there is an increase in the sensitivity levels that are present in the workplace. People start to look for ways to find common ground. There is more time given to each team member to share ideas, and a higher emphasis on hiring women occurs.

Diversity in the workplace exposes societal bias.

Bias is what destroys diversity in the workplace before it can establish itself. Hiring managers tend to bring men on more than women, even if the qualifications of each candidate are equal. During a study funded by Harvard and Princeton, managers were given a set of applications and qualifications, but they did not reveal the gender of each identity. During this blind process, women were preferred over their male counterparts when gender was not part of the hiring process.

Diversity in the workplace creates more revenue-earning opportunities.

The companies which focus on diversification are the businesses which tend to see more sales and revenues because of their efforts. Emphasizing multiple language fluency for a team can boost their profits by 10% for every fluent language that is spoken. Gender diversity can help revenues grow by 40% in the first year of this effort. This advantage can open new markets for the organization that can help profits to start climbing as well without a significant increase in the work of the team.

Companies have access to more talent.

When diversity in the workplace is a top priority for an organization, then supervisors and hiring managers can expand their applicant screening processes to include more people. There are fewer restrictions on geographic location, educational accomplishments, or previous work histories. The top priority in the hiring process focuses on the talent and skills of the individual, and then how that person could fit into the team.

It increases the number of job opportunities for minority workers.

Diversity in the workplace looks at all population demographics when hiring for an open position. That means employers have an opportunity to find the best possible person for a job because they are not limited to a specific group of individuals. This advantage makes it possible to have more women working in society and promotes the hiring of minority groups. It applies at all levels of employment, from the local small business to multinational firms.

This design allows each team member to focus on their strengths.

If an employer can create diversity in the workplace, then each worker will have their strengths complement those of everyone else on the team. That means assignments can be handed out with greater specificity so that the quality of the work improves. Supervisors aren’t forced to guess at who might be the best option for an assignment because each person has a unique skill that they bring to the table.

Employers have more chances to cross-train workers and teams.

Diversity in the workplace creates teams where each person brings a unique strength to work every day. Individuals can specialize in their career, which means their skills and wisdom can be passed along to other team members. Everyone gets to learn and grow each day because there are higher levels of information exposure thanks to the varying backgrounds and educational opportunities each person accomplished.

Employers have more chances to cross-train workers and teams.

Diversity in the workplace creates teams where each person brings a unique strength to work every day. Individuals can specialize in their career, which means their skills and wisdom can be passed along to other team members. Everyone gets to learn and grow each day because there are higher levels of information exposure thanks to the varying backgrounds and educational opportunities each person accomplished.

This perspective can help companies to start growing bigger and faster.

Almost 70% of hiring managers in the United States say that the implementation of a diversity initiative was a contributing factor to the growth of their organization. This advantage helps the organization to create new opportunities for existing team members, install new positions, and raise wages as productivity and creativity levels rise to encourage a stronger sales atmosphere.

It is a way to increase the creativity of an entire team.

Almost 80% of employees working in the United States say that they are not using their creativity to its full potential. Diversity is one of the best environments to encourage this approach to a career because it offers numerous perspectives that can enhance the brainstorming sessions. The biggest complainers about a lack of creative energy in the modern workplace are those who limit the diversity of their teams.

Customers are attracted to diversity in the workplace.

Over 40% of employees say that their company has the right amount of diversity or that their teams should try to become more unique. Although it can be challenging to share a workplace environment with someone who is uniquely different, the advantages typically outweigh the problems which can develop over time. When everyone comes from the same perspective, then the daily routine becomes dull. Going to work becomes a boring experience. People can even lose their passion for what they do because there is a lack of diversity present on their team.

Negative effects

Unresolved Conflict

Greater differences in a workplace produces more potential for conflict among employees. People that come from different cultural backgrounds have different perspectives on how to handle issues or concerns that arise. An inability to see where the other person is coming from can prohibit effective resolution of conflicts. When employees feel like they cannot reach a point of agreement in conflict they may give up and simply let the ill feelings fester and create a negative tone.

Hiring managers focus on leadership qualities too often.

Diversity in the workplace seeks out experts who excel in their chosen career, job function, and team environment. The goal is to create a series of strengths that allows everyone to grow over time. These are all advantages, but it can become a problem if hiring managers are bringing in people who all want to be in charge. Competition can be healthy, but it can also be dangerous when it spirals out of control.

Potential Turnover

A significant bottom line effect of poorly managed diversity is high turnover. Dissatisfied employees that feel like the work environment is unsafe will leave. Constantly replacing employees lost to ill will or a general feeling of discontent is costly as the company has to pay to hire and train replacements. The business risks losing top talent to competitors if the workplace does not provide a safe and motivating culture where employees from diverse backgrounds are welcomed and treated fairly.

Diversity can create workers who are over-qualified for some jobs.

Communities grow and decline naturally as the economy settles into a comfortable pattern. Diversity in the workplace can create stable circumstances and more job security, but it can also create a series of problems where workers become over-qualified for what they are doing. If that individual were to lose their job for some reason, then it could become a struggle for them to find new employment elsewhere.

Poor Communication

Poor communication fuels conflict and can be one of the biggest negative effects of diversity in the workplace, according to This Way. If a workplace has employees from different countries with different native languages, communication is especially difficult. However, a number of barriers or filters can prohibit clear and meaningful communication between employees. It is imperative that companies train employees on cultural awareness and tolerance of differences to encourage them to openly discuss their different viewpoints on things as opposed to avoiding interaction or getting into conflict.

Diversity in the workplace can create too many opinions.

When hiring managers focus on diversity, then they are creating a series of differing opinions that can make it easier to find the right journey to take for forward progress. There are also times when the sheer number of available opinions can create a problem for the organization. When everyone gets a chance to be heard, then the speed of a project can slow down just as quickly as it can increase.

Time and Money

From the business’ perspective, the benefits of diversity must outweigh the time and expenses involved in managing it. Too many opinions can also be hard to sift through and waste valuable time, while potentially creating fog around the best answers, says FDI. Providing diversity training and creating a cooperative culture takes on going effort for time and management. Many companies hire trainers to come in and give background on differences and to teach the importance of accepting others and valuing their opinions.

Offshoring can become a point of emphasis with diversity in the workplace.

Domestic diversity can become an expensive proposition. It costs a lot, between salary and benefits, to hire the best people for your open positions. Because of this issue, it is not unusual for companies to look for offshoring opportunities that can help them to add unique perspectives to their corporate identity without a significant labor expense. This issue can create a lack of job security for existing workers, which can limit their focus and productivity.

Some teams become hostile during an increase in diversity.

Different perspectives create unique opinions and approaches to life that can create severe disagreements in the workplace. It is not unusual for every person to believe that their individual perspectives are the correct one, so they will share that information with others. If someone should happen to disagree, then some people will take that as a personal attack against their character, integrity, or even their spirituality.

Workforce Diversity Meaning, Features and Significance

Workforce management (WFM) is the process of strategically optimizing the productivity of employees to ensure that all resources are in the right place at the right time. Typically, a workforce management strategy includes scheduling, forecasting, skills management, timekeeping and attendance, intraday management, and employee empowerment. Complexity increases with the need to ensure that customer service supports omnichannel customer engagement.

Managing workforce diversity implies creating an organisational climate in which a heterogeneous workforce performs to its best potential; without the organisation favouring /dis-favouring any particular segment of workforce with a view to facilitating the best attainment of organisational goals.

Workforce diversity also means the varied personal characteristics that make the work force of an organization heterogeneous. Organization in the past took a “Melting Pot” approach to differences in organizations. It was assumed that people who were from different background would automatically want to adjust with the workforce in organization but now a day’s employees come with a set life style, values and preferences when they come to work.

The challenge for HR manager therefore, is to make their organizations more accommodating to divers groups of people by addressing different life styles, needs, values and work styles.

According to Moorhead and Griffin “Workforce diversity is concerned with the similarities and differences in such characteristics as age, gender, ethnic heritage, physical abilities and disabilities, race, and sexual orientation, among the employees of organisations.”

Primary dimensions such as age, gender, race, ethnicity, sexual orientation, and physical abilities represent those elements that are either inborn or exert extra influence on early socialization. These dimensions make up the essence of who we are as human beings. They define us to others, making them react towards accordingly.

Primary dimensions such as age, gender, race, ethnicity, sexual orientation, and physical abilities represent those elements that are either inborn or exert extra influence on early socialization. These dimensions make up the essence of who we are as human beings. They define us to others, making them react towards accordingly.

Primary Dimensions:

These are core elements about each member of the workforce that can’t be changed such as age, race, gender, physical and mental abilities and sexual orientation. These inborn elements are interdependent and exert an important influence on individual’s behaviour throughout the life. Together they form an individual’s ‘self-image’.

Gender diversity is increasingly apparent throughout the world. Not only are more women working, but gender-based occupational segregation is also declining in many countries. Thus, within corporations men and women are more likely to be found working side-by-side. Age diversity is increasing too. Many industrialized countries are experiencing declining rates of population growth, which push employers to hire both young and older employees.

Secondary Dimensions:

These constitute the elements that can be changed or at least modified. They include a person’s health habits, religious beliefs, education and training, general appearance, status relationship, ethnic customs, communication style and level of income. All these factors add an additional layer of complexity to the way we see ourselves and others and in some instances can exert a powerful impact on our core identities.

An accountant with ten years of work experience might adjust to a new position far differently from an accountant with much less experience. A male earner who loses his job may be severely affected by his loss of income as he has to cater to his familial demands whereas a married woman with no children may not be as affected by a similar loss as her husband can still meet the requirements of the family.

Features:

(i) Workforce diversity management requires creation of an organisational climate, in which people from different cultural, social backgrounds and being diverse in many other respects (e.g. age, gender, education etc.) can co-exist and work, with full co-operation of one another.

(ii) Workforce diversity management aims at making people work to the best of their potential

(iii) Workforce diversity management rules out any discrimination among people, in any respect, whatsoever.

(iv) Work-force diversity management is expected to work towards the best attainment of organisational goals.

Significance of Workforce Diversity Management:

Workforce diversity management is significant for the following reasons:

(i) Ability to Deal with Diverse Market:

Culturally diverse workforce can better appreciate the needs, feedings, and attitudes of culturally diverse consumers. Thus, workforce diversity increases the competence of a corporation to deal with a market; that consists of diverse consumer groups in respect of age, sex, culture etc.

(ii) Better Decision-Making:

People from heterogeneous backgrounds may aid management in better decision-making, by offering suggestions from a wide range of perspectives and orientations. In fact, heterogeneous groups of people may be more creative and innovative; when they pool their knowledge and experiences and agree on a common solution to a tricky problem; which might aid management in making excellent decisions for the organisation.

(iii) Better Human Relations:

Workforce diversity management aims at developing and nurturing a common organisational culture and climate; which enable people from diverse culture and backgrounds to co-exist peacefully. Such a common organisational culture and climate leads to better human relations in the enterprise and produces all-round organisational and managerial efficiency.

(iv) Preventing Unnecessary Labour Turnover:

When in an organisation there is good workforce diversity management; women and other dis-satisfied people are prevented from leaving the organisation. In case otherwise, when there is large labour turnover because of poor workforce diversity management; investment made in manpower may go waste, with other bad consequences for the organisation. In fact, employees leave the organisation when they do not feel comfortable and duly cared for by management.

(v) Building of Goodwill of the Enterprise:

Companies with excellent workforce diversity management build goodwill in the society. As such, talented people of society with diverse backgrounds and culture get attracted towards it for seeking suitable employment. Such companies never have a problem of the scarcity of skilled, educated and talented human capital.

Techniques of Workforce Diversity Management:

(i) Creating Awareness of Diversity:

Management must create awareness in the organisation that differences among people as to age, sex, education, culture etc. exist in workforce; so that people may try to understand one another in a more rational and friendly manner.

(ii) Creating Conditions for Common Organisational Culture:

Organisation must develop cross-cultural training programmes creating conditions for development of a common organisational culture and climate. Such common culture will create an environment in which a diversified work force can co-exist comfortably, peacefully and happily.

(iii) Programmes of Special Care for Diversified Workforce:

Management must design programmes of special care, like the following:

  1. Care for elderly people
  2. Special work schedules to provide convenience to female workers etc.

(iv) Career Development Programmes:

There must be programmes for identifying each individual’s strengths, weaknesses and potential for career development; so that the organization can capitalize on the peculiar features of a diversified workforce. In fact, people should be valued for their difference and variety.

(v) Avoiding Discriminations:

A very significant technique for excellent workforce diversity management is to avoid any sort of discrimination among people on the basis of age, culture and specially sex. In the most developed country the U.SA, the Glass Ceiling Commission states that between 95 and 97 percent of senior managers in the country’s biggest corporations are men.

(The term ‘glass ceiling’ describes the process by which women are barred from promotion by means of an invisible barrier).

(vi) Prevention of Sexual Harassment:

With the entry of a large number of women in organisations, the phenomenon of sexual harassment is usually witnessed; which management must prevent by all means and at all costs. Sexual harassment includes a range of actions, like  unwelcome touching, joking, teasing, innuendoes (indirectly bad and rude remarks), slurs, and the display of sexually explicit materials.

According to Jenny Watson, Deputy Chairman of the UK’s Equal Opportunities Commission (EOC), sexual harassment is no laughing matter for hundreds of thousands of British workers, who experience it.

(vii) Committees of Diverse Members:

Committees of diverse members must be formed for evaluating and addressing complaints of people, regarding their sad experience of working in the organisation.

Workforce

The workforce or labour force is the labour pool either in employment or unemployed. It is generally used to describe those working for a single company or industry, but can also apply to a geographic region like a city, state, or country. Within a company, its value can be labelled as its “Workforce in Place”. The workforce of a country includes both the employed and the unemployed (labour force). The labour force participation rate, LFPR (or economic activity rate, EAR), is the ratio between the labour force and the overall size of their cohort (national population of the same age range). The term generally excludes the employers or management, and can imply those involved in manual labour. It may also mean all those who are available for work.

Formal and Informal

Formal labour is any sort of employment that is structured and paid in a formal way. Unlike the informal sector of the economy, formal labour within a country contributes to that country’s gross national product. Informal labour is labour that falls short of being a formal arrangement in law or in practice. It can be paid or unpaid and it is always unstructured and unregulated. Formal employment is more reliable than informal employment. Generally, the former yields higher income and greater benefits and securities for both men and women.

Informal Labour

The contribution of informal labourers is immense. Informal labour is expanding globally, most significantly in developing countries. According to a study done by Jacques Charmes, in the year 2000 informal labour made up 57% of non-agricultural employment, 40% of urban employment, and 83% of the new jobs in Latin America. That same year, informal labour made up 78% of non-agricultural employment, 61% of urban employment, and 93% of the new jobs in Africa.[8] Particularly after an economic crisis, labourers tend to shift from the formal sector to the informal sector. This trend was seen after the Asian economic crisis which began in 1997.

Informal Labour and Gender

Gender is frequently associated with informal labour. Women are employed more often informally than they are formally, and informal labour is an overall larger source of employment for females than it is for males. Women frequent the informal sector of the economy through occupations like home-based workers and street vendors. The Penguin Atlas of Women in the World shows that in the 1990s, 81% of women in Benin were street vendors, 55% in Guatemala, 44% in Mexico, 33% in Kenya, and 14% in India. Overall, 60% of women workers in the developing world are employed in the informal sector.

The specific percentages are 84% and 58% for women in Sub-Saharan Africa and Latin America respectively. The percentages for men in both of these areas of the world are lower, amounting to 63% and 48% respectively. In Asia, 65% of women workers and 65% of men workers are employed in the informal sector. Globally, a large percentage of women that are formally employed also work in the informal sector behind the scenes. These women make up the hidden work force.

Workforce management (WFM) is an institutional process that maximizes performance levels and competency for an organization. The process includes all the activities needed to maintain a productive workforce, such as field service management, human resource management, performance and training management, data collection, recruiting, budgeting, forecasting, scheduling and analytics.

Workforce management provides a common set performance-based tools and software to support corporate management, front-line supervisors, store managers and workers across manufacturing, distribution, transportation, and retail operations. It is sometimes referred to as HRM systems, or Workforce asset management, or part of ERP systems.

As workforce management has developed from a traditional approach of staff scheduling to improve time management, it has become more integrated and demand-oriented to optimize the scheduling of staff. Besides the two core aspects of demand-orientation and optimization, workforce management may also incorporate:

  • Forecasting of workload and required staff
  • Involvement of employees into the scheduling process
  • Management of working times and accounts
  • Analysis and monitoring of the entire process.

The starting point is a clear definition of the work required through engineered standards and optimal methods for performing each task as efficiently and safely as possible. Based on this foundation and demand-based forecasts, workers are scheduled, tasks are assigned, performance is measured, feedback is provided and incentives are computed and paid. In addition, online training is provided along with supervisor-based coaching to bring all workers up to required levels of proficiency. Workforce management is a complete approach designed to make workforce as productive as possible, reduce labour costs, and improve customer service.

Field Service Management

Workforce management also uses the process of field service management in order to have oversight of company’s resources not used on company property. Examples include:

  • Demand Management: To help forecast work orders to plan the number and expertise of staff that will be needed.
  • Workforce Scheduler: Using predefined rules to automatically optimise the schedule and use of resources (people, parts, vehicles).
  • Workforce Dispatcher: Automatically assigning work orders within predefined zones to particular technicians
  • Mobile Solutions: Allowing dispatchers and technicians to communicate in real time.

Contribution pension plans

A defined contribution plan is a common workplace retirement plan in which an employee contributes money and the employer typically makes a matching contribution. Two popular types of these plans are 401(k) and 403(b) plans. Defined contribution plans are the most widely used type of employer-sponsored benefit plans in the United States. The plan may require that you enroll yourself to take advantage.

A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts (through employee contributions and, if applicable, employer contributions) plus any investment earnings on the money in the account. In defined contribution plans, future benefits fluctuate on the basis of investment earnings. The most common type of defined contribution plan is a savings and thrift plan. Under this type of plan, the employee contributes a predetermined portion of his or her earnings to an individual account, all or part of which is matched by the employer.

Defined contribution plans and defined benefit plans have a number of notable differences. In a defined contribution plan, both you and your employer can contribute to your individual account. For some plans, you may be required to wait up to one year before enrolling. There may also be a waiting period before any contributions your employer makes to the account become yours to keep.

In a defined benefit plan, generally only your employer contributes and you get a monthly payout in retirement. There are two types of defined benefit plans: Traditional pensions and cash-balance plans. Both plans automatically enroll participants. However, for some defined benefit plans, you must wait some period of time before you are enrolled and/or the benefits become yours to keep.

Defined-contribution plans accounted for $8.2 trillion of the $29.1 trillion in total retirement plan assets held in the United States as of June 19, 2019, according to the Investment Company Institute. The defined-contribution plan differs from a defined-benefit plan, also called a pension plan, which guarantees participants receive a certain benefit at a specific future date.

Defined contribution plans take pre-tax dollars and allow them to grow in capital market investments on a tax-deferred basis. This means that income tax will ultimately be paid on withdrawals, but not until retirement age (a minimum of 59½ years old, with required minimum distributions (RMDs) starting at age 72).

The idea is that employees earn more money, and thus are subject to a higher tax bracket as full-time workers, and will have a lower tax bracket when they are retired. Furthermore, the income that is earned inside the account is not subject to taxes until it is withdrawn by the account holder (if it’s withdrawn before age 59½, a 10% penalty will also apply, with certain exceptions).

Contributions made to a defined-contribution plan may be tax-deferred. In traditional defined-contribution plans, contributions are tax-deferred, but withdrawals are taxable. In the Roth 401(k), the account holder makes contributions after taxes, but withdrawals are tax-free if certain qualifications are met. The tax-advantaged status of defined-contribution plans generally allows balances to grow larger over time compared to accounts that are taxed every year, such as the income on investments held in brokerage accounts.

Employer-sponsored defined-contribution plans may also receive matching contributions. More than three-fourths of companies contribute to employee 401(k) accounts based on the amount the participant contributes. The most common employer matching contribution is 50 cents per $1 contributed up to a specified percentage, but some companies match $1 for every $1 contributed up to a percentage of an employee’s salary, generally 4%–6%. If your employer offers matching on your contributions, it is generally advisable to contribute at least the maximum amount they will match, as this is essentially free money that will grow over time and will benefit you in retirement.

India

Central Government employees in India who joined after January 1, 2004 participate in National Pension Scheme which is defined contribution plan run by Pension Fund Regulatory Authority of India. Earlier employees were under Defined Benefit Plan.

All Government and Private sector organizations had to offer Provident Fund (PF) which is a type of Defined Contribution Plan. The NPS which was started in 2004 is a recent option given to all Central Government employees. The 10% of contribution made by the employer and employees are mandated by the regulations. Additionally, employees are given the ability to opt for an additional contribution if they so desire. All contributions are managed by the PF authority. PF authority choose the investment vehicle; however, the beneficiaries are given a standard % of returns on their contribution. Some large private sector organizations have also formed their Trust to manage the contributions received from its employees.

United Kingdom

In the UK the shift from defined benefit to defined contribution retirement plans has elevated significantly, to the point where many large DB plans are no longer open to new employees. This momentum has been employer-driven and is considered a response to a combination of factors such as pension underfunding, declined long-term interest rates and the move to more market-based accounting. The focus is now on managing pension fund assets in relation to liabilities instead of market benchmarks. The Pensions Policy Institute estimates that in 2013 there were approximately 8 million private sector workers building up DC benefits, compared to approximately 1 million building up DB benefits. However, one point of concern with these schemes is that employers often contribute less than what they would under final salary plans. According to the National Association of Pension Funds (NAPF), employers contribute on average 11% of salary into final salary schemes, compared to only 6% to money purchase. This indicates that individuals will have to save more of their own income into a retirement fund in order to accomplish a satisfactory retirement income. Companies such as Aon Hewitt, Mercer and Aviva recognise these challenges and have identified the need to help new generations of workers with their retirement funding plans.

Budget 2014: All tax restrictions on retired people’s access to their registered retirement pots are removed, ending the requirement to buy an annuity. The taxable part of the registered retirement pot is taken as cash on retirement to be charged at normal income tax rates. The increase in total registered retirement savings that people can take as a lump sum to £30,000.

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