Why Talent Reviews Are Now A Huge Legal Risk (And How To Fix It)
Last month, a federal court ruled that decisions about employees by upper management exercising “unfettered discretion” may qualify for certification in Title VII class action suits. This decision is part of a growing body of case law that challenges traditional talent management practices (i.e., talent reviews, high-potential identification, and succession planning) turning them into a multi-million-dollar legal risk for many corporations.
Most organizations conduct an annual talent review as part of their succession management. On the surface, this process seems perfectly fair and legitimate: Small groups of upper management calibrate on how they define “performance” and “potential.” They discuss the key talent in their organization and decide where to place them on the 9-box grid. Employees flagged as “high-potentials” are then invited to special programs, given access to scarce resources, and actively groomed for promotions.
What’s the legal risk?
As objective as they may seem on the surface, if you’ve ever sat in on a talent review, you know just how vulnerable the process is to unconscious bias and favoritism. Most often, executives rely on their limited impressions of employees and fight for their select few favorites. Without any objective data at hand, the process may be inadvertently discriminating against a protected group, as, for example, Yulonda Woods-Early claims to be happening at Corning, a multinational technology company.
Last year, Yulonda Woods-Early filed a class action law suit alleging that Corning discriminated against African-Americans because, in employee evaluations, upper management exercised unfettered discretion, which prevented her and other African-American employees from being identified as “emerging talent” (Woods-Early v. Corning Corp., Case No. 18-CV-6162). Because they were unable to achieve the status of emerging talent, African-American employees were prevented from accessing important networking opportunities, promotions, and higher pay.
Last month, U.S. District Court for the Western District of New York ruled for the case to proceed. This decision now challenges traditional talent management practices turning them into a multi-million-dollar legal risk for many corporations. Last year alone, the U.S. Equal Employment Opportunity Commission filed 199 discrimination law suits and secured $505 million for discrimination victims through litigation and settlements.
How to fix it?
This federal court decision is part of a growing body of case law. We will likely see more of similar class action suits challenging traditional talent management practices that rely on “managerial discretion.” This poses a serious legal risk for many corporations, especially if they employ practices like 9-box placement, identification of successors, or recommendations to high-potential pools that are solely derived from managers’ ratings. There are, however, couple things you can do to minimize the risk:
1. Calculate disparate (adverse) impact
There is a way to calculate if your talent management practices (like the 9-box placement in a talent review or recommendation to a high-potential pool) discriminate against a protected group. According to the 1979 EEOC interpretation, adverse impact exists if one group is selected at less than 80 percent of the selection rate of the group with the highest selection rate.
For example, a group of executives may be reviewing 300 mid-level managers in several talent calibration meetings and plotting them on the 9-box. Together they rate 250 women and 150 men. Looking at the 9-box grid, 15 women and 15 men end up in the top right box and are recommended to the company’s high-potential program. Although it may seem that an equal number of men and women were identified as high-potentials, their selection ratio is different. The selection ratio of women is 15/250 = 6% and for men it’s 15/150 = 10%. To calculate if adverse impact occurred, we’ll divide the selection ratio for men by the selection ratio for women, 6/10 = 60%. In this case, the talent review process adversely impacted women since women were selected at less than 80% of the selection rate of men.
2. Add objective metrics
The biggest legal risk coming out of the Woods-Early v. Corning ruling is the reliance on “unfettered managerial discretion” in talent management practices. People, including all managers and executives, are inherently biased in their decision-making. We unconsciously prefer others who look like us, no matter how much time and effort we invest in training and calibration (Banaji & Greenwald, 2013). Unless you bring objective metrics to the process, you run the risk of discriminating against a protected group.
There are many objective metrics to choose from, but the tool with a long track-record of not producing adverse impact is an assessment center (Thornton & Rupp, 2006). Assessment centers evaluate employees’ competencies in a business simulation and predict their potential from psychometric tests. You can use the objective data from an assessment center to plot your employees on a 9-box (as seen in the picture above). To learn more about using assessment centers in talent reviews, high-potential identification, and succession planning, click here.
Woods-Early v. Corning and similar discrimination cases that will likely follow have the potential to change the traditional talent management practice. We’ve known for a long time about the vulnerability of talent reviews, high-potential nominations, and succession planning to unconscious bias and favoritism. Now we have a very good reason to believe that such talent management practices actually pose a multi-million-dollar legal risk to many corporations. This is your chance to bring fairness and transparency to talent management.