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As research shows, managers that want to improve employee retention must first learn how to nurture a work culture built on diversity and inclusion. Yet, a gap remains.

Today, there is a clear disconnect between managers and employees when it comes to understanding the importance of diversity, equity, and inclusion (DEI). A 2021 study by Momentive (formerly Survey Monkey) shows that while 62% of employees value DEI as an important factor in their company’s ability to drive success, only 48% of C-level executives agree, with almost half of them (C-level executives) saying that it is a distraction from the company’s real work. So, given this disconnect, how does diversity impact employee retention?

how does diversity impact employee retention

The benefits of a diverse workforce have long been known. A 2018 study of the IT sector in the US by Deloitte revealed that companies that lead in diversity and inclusion report higher employee retention and lower employee turnover. 


But perhaps Chron, a Houston-based media, sums it up best: “Having a diverse workforce means your business is more likely to appeal to a wider customer base on the outside and have a richer source of creativity on the inside. Employees feel valued for their individuality and unique contribution so are more likely to stay on for longer.“ 


There then appears to be a direct correlation between employee retention and profitability, since research by Gallup has shown that it costs one-and-half or two times an employee’s annual salary to replace them with a new one. 


Therefore, businesses that want to maintain and/or improve profitability must pay strong attention to employee retention – and the support of DEI strategies helps. As a 2020 McKinsey and Co study has shown, companies with ethical and cultural diversity outperform others by 36% in profitability. 


In other words, it pays to support diversity in the workplace. 


Here we will consider exactly how diversity leads to better employee retention and resulting HR strategies to improve inclusion in the workplace. We’ll cover: 

  1. Connecting the dots between employee satisfaction and employee retention
  2. Benefits of diversity in the workplace
  3. How to achieve diversity and inclusion in the workplace


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1. Connecting the dots between employee satisfaction and employee retention

A study by Harvard Business Review has shown that there are two key internal factors that determine whether an employee will stay in a company or not: job satisfaction and company environment. 


According to the study, when there is a growing gap between an employee’s work ethic (a product of their values and the conditions they face at work) and the company’s values, the possibility of turnover increases, and vice versa.


Though there are external factors that also affect employee retention – such financial responsibilities, family ties, friendships, and community relations – the company can only focus on the internal factors and put in retention strategies to ensure there is an alignment between employees’ ethics and their own values.


Moreover, “while many employees leave for other jobs in search of a bigger paycheck, the underlying reason for turnover in many cases is dissatisfaction,” according to Chron. An academic research paper published by the International Journal of Economics, Commerce, and Management, also showed a positive correlation between job satisfaction and employee retention. 


However, a 2019 study by Glassdoor has shown that the factors affecting employees’ job satisfaction are changing. 


According to this study, the culture and values of the organisation, quality of senior leadership, and access to career opportunities within the company have risen to the top of the list as criteria for measuring employee retention. In contrast, work-life balance, compensation and benefits, and business outlook have fallen to the bottom of the list. 


“Money is not always the main cause of employee satisfaction,” according to Chron. “Job satisfaction increases when employees have a good relationship with their peers and managers, when the work is stimulating and where their work style and personality fit in with the company culture.”


In fact, the 2021 study by Momentive has also shown that “a commitment to social responsibility may be the key to employee satisfaction.” In fact, 78% of respondents said that it is important to work for a company that prioritises diversity and inclusion, while 58% said it is very important. In fact, workers who said their companies are not doing enough to prioritise diversity and inclusion scored lower (63) on the Workforce Happiness Index when compared to those whose companies are doing enough or too much (75). 

how does diversity impact employee retention

In essence, job satisfaction is crucial to employee retention and a socially responsible organisation, with the right culture and values (including prioritising diversity and inclusion), will have more satisfied and happy employees.  


2. Benefits of diversity in the workplace

But why are diversity and inclusion so important to the satisfaction (and retention) of employees? 


Said differently, how does diversity impact employee retention? 


Let’s consider a few universal factors: 

Sense of belonging

According to Diversity and Ability, an advocacy group for disabled people, a lack of a sense of belonging is a major factor in employees leaving their jobs. When employees believe that they will not be accepted in a workplace because of their peculiar characteristics, they are more likely to have lower employee engagement and then leave in search of a sense of belonging. 


In fact, a study by Deloitte shows that 75% of employees feel the need to mask or downplay their differences when they are at work. This masking or downplaying reinforces those differences and makes it more difficult to feel like one belongs. 


“The impact of having to mask or hide aspects of yourself during the work day cannot be underestimated,” according to Diversity and Ability. “It affects job performance, confidence and contributions, but also motivation, desire to progress and even feelings of safety. Of course, all of this in turn leads to employees who feel no real loyalty to their company.”


Moreover, research by Perceptyx, a people insights platform, shows that high employee turnover among minorities affects all employees. That is, when those who don’t feel a sense of belonging leave, even those who stay are affected. Even when they are not the object, employees who observe discrimination can become less connected to the organisation. 


In contrast, when employees are part of a diverse and inclusive workforce where they are not discriminated against because of their disability, age, ethnicity, culture, religion or gender, they feel included and are motivated to do their work without watching their backs. And this sense of belonging is reinforced across the whole organisation such that even those who are not in the minorities feel more connected.  


With deeper connections, they are more likely to stay rather than leave.


A company like NOW Money promotes diversity and inclusion by building a team that varies by gender, age, ethnicity, and culture. With such a diverse team, it is able to achieve its goal of bringing banking and financial services to everyone in the UAE, irrespective of gender, age, ethnicity, and cultural background. 


In essence, a diverse and inclusive workplace is better positioned to work together, with a shared sense of belonging, for diversity and inclusion in relation to greater society.


[To learn more about workforce discrimation, read “9 Common Types of Employement Discrimination in the Workforce.”]


Workplace diversity also encourages innovation – and innovation is crucial to employee satisfaction. 


In a study conducted by Forbes, 56% of companies with more than $10 billion in annual revenues strongly agree that diversity helps to drive innovation. “Because of our diverse workforce, we’ve experienced a boost in productivity. When you can move people to contribute to their fullest, it has a tremendous impact,” said  Rosalind Hudnell, director of global diversity and inclusion at Intel. “We have a vast amount of diversity [within the company] that comes into work every day to build technology that plays out around the world. You can’t be successful on a global stage without it.”


After producing the first-ever corporate ranking of S&P 500 companies according to their diversity and inclusion in 2019, the Wall Street Journal concluded that “diverse and inclusive cultures are providing companies with a competitive edge over their peers.” 


Commenting on this ranking, a contributor at Forbes said that “the Journal’s researchers’ work joins an ever-growing list of studies by economists, demographers, and research firms confirming that socially diverse groups are more innovative and productive than homogeneous groups.” 


Said differently by Noor Alhashmi, SVP of Human Capital at Abu Dhabi Finance, “diversity is important for creativity, innovation and to gain insight into company clients. Inclusion, on the other hand, is crucial for productivity because, whilst we can be diverse in the workforce, high performance comes from understanding and respecting each other through inclusion.”


So, how does diversity drive innovation exactly? 


The Forbes contributor astutely observes that “diverse teams become better prepared for decision-making and accomplishing the task at hand. A sense of complacency and sameness in thinking is more likely in homogeneous teams than in diverse teams. Differences among team members force each person to anticipate that there will be alternative and unexpected viewpoints to consider and evaluate. Reaching a consensus will take more effort. People must work harder to communicate their own thinking, and they need to broaden their own views to consider the unexpected perspectives of others.”


“Differences among team members force each person to anticipate that there will be alternative and unexpected viewpoints to consider and evaluate. Reaching consensus will take more effort. “ – Forbes


The result of such diverse views from diverse team members is more innovation and higher productivity. Indeed, companies with diversity and inclusion are six times more innovative and agile, eight times more likely to achieve business results, and two times more likely to exceed financial targets, according to Deloitte.

Career opportunities 

Top-down diversity is a sign to your workers that if they work hard they can progress to the highest level of the organisation without the danger of discrimination. 


“At the end of the day, your employees will only really stay at your organisation long-term if they see a future for themselves. That’s why it’s so important for your organisation to be truly diverse at every level,” according to Diversity and Ability.


As we saw in the Glassdoor study above, the availability of career opportunities is now one of the top three sources of job satisfaction. Therefore, by exemplifying diversity and inclusion at the highest levels, a company communicates to every worker that they can fully explore their capabilities there


With this message fully ingrained in their minds, employees will be more likely to stay than leave. “If you see signs that your employer is committed to true inclusivity, you see potential to progress and are more likely to stay with your organisation for the long-term,” said Diversity and Ability. 


Academic research published on Science Direct has shown that “perceived organisational reputation has a positive correlation with organisational commitment and job satisfaction whereas it has a significant negative correlation with turnover intentions.”A similar study published by Ligs University, US, concluded that a “strong corporate reputation brings emotional satisfaction to employees since most people display pride in announcing the corporation they work for.”


Consequently, a company with a bad reputation of discrimination and disparity will experience higher turnover compared to a company with good reputation of diversity and inclusion. Indeed, 74% of respondents to a study by Institute for Public Relations agreed that diversity and inclusion are essential drivers of a company’s reputation. 


So, in the end, how does diversity impact employee retention? Diverse workforces help improve a sense of belonging, provide a diversity of views, encourage innovation, demonstrate that everyone can grow to the utmost heights of their career, and cultivate a positive reputation with outsiders. 


3. How to achieve diversity and inclusion in a GCC workplace

If DEI is so important to employee retention, how can GCC companies cultivate an inclusive workplace? 


Here are some guidelines to help managers in our region get started. 


Diversity and Ability has some suggestions: 


  • Start diversity and inclusion training across the organisation: Sometimes, discriminatory attitudes and actions can arise from co-workers rather than management. Therefore, in addition to management teams and human resource executives educating themselves about diversity and inclusion, the whole organisation must be adequately trained on the importance of mutual respect. 


As the Harvard Business Review article above said, work environment or company culture is crucial to employee retention. Employers and managers must organise training programs and explore other ways to foster a work culture that is conducive to diversity and inclusion. 


  • Inclusive employment practices: The kind of diversity and inclusion that spur innovation and agility must begin at the hiring process. Organisations who want a diverse workplace must avoid discriminating against people because of their gender, demographic, ethnicity, religion, disability, among others. 

  • Supporting employees: Catering for employees who are in the minority (because of any of the factors listed above) include having the listening ears to sympathise with their experience and making provisions to improve their sense of belonging. For women, this might include sufficient maternity leave; and for disabled workers, this will include a comfortable office. 


Another important point is that employees must see that the company has an all-around culture of diversity and inclusion. That is, companies should not only embrace diversity and inclusion in relation to employees but promote, support, and pursue it even when employees are not directly involved. 


For example, NOW Money’s mobile banking app supports 11 different languages, thereby ensuring that everyone, irrespective of language, can access mobile banking solutions essential to their well-being. 


This shows that the company is committed to a culture of diversity and inclusion, making it easier for employees to stay in such a company. 


Furthermore, according to Momentive, “prioritising DEI within your company is a long-term commitment, so there are no quick fixes.” Nevertheless, there are steps that every organisation can take to create an inclusive workplace: 


  • Setting clear, public goals around social responsibility: Companies should set DEI initiatives and treat them like other business initiatives – with measurable, objective, and quantitative goals. 

  • Evaluating culture, not just recruitment: This is the same point that Diversity and Ability is trying to make: companies must take steps to create a diversity and inclusion culture that goes into every part of the organisation.


“Diversity and inclusion are no longer limited to the hiring process, but are now embedded within company values and culture, and rightly so,” said Noor Alhashmi. 


  • Factoring DEI into business decisions and partnerships: This is primarily about company reputation. Companies committed to diversity and inclusion must reflect it in their business decisions and partnerships. 

  • Listening to employees and taking action: Sympathising with employees, listening to them, and doing something about their complaints, fears, and desires is a crucial way to prioritise DEI. 


One place where discrimination manifests itself is in the payroll process – paying the same workers doing the same thing different salaries because of factors not related to work performance. 


It is thus wise that every employer have a payroll management system that is transparent and reflects a non-discriminatory stance. 


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  • Employee job satisfaction is important for employee retention. 
  • Diversity and inclusion can contribute to improving employee retention and lowering turnover rates by fostering a sense of belonging, innovation and providing career opportunities and positive reputation.
  • Achieving diversity and inclusion will lead to job satisfaction for employees and improved profitability for employers. 
  • Beyond taking one or two steps towards more diversity, companies must focus on building a culture of diversity and inclusion throughout the organisation. 
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