The Board Can Enhance Its Diversity and Inclusion Efforts

Introduction

Objective

The Office of Inspector General (OIG) conducted an audit in response to a March 24, 2014, congressional request for information on the Board of Governors of the Federal Reserve System's (Board) activities related to diversity and inclusion.¹  We received a similar congressional request for information on activities related to diversity and inclusion at the Consumer Financial Protection Bureau, as did the OIGs of five other federal financial regulatory agencies.²  We coordinated with the other OIGs to develop a comparable objective and scope to address the congressional requests.

Our resultant objective was to assess the Board's human resources–related functions and other efforts to provide for equal employment opportunities, including equal opportunity for minorities and women to obtain senior management positions, and increase racial, ethnic, and gender diversity in the workforce. To answer our objective, we 

• reviewed relevant agency personnel operations, policies, and procedures, (e.g., policies related to performance management and hiring), to determine whether adequate controls are established to prevent and detect bias or discrimination
• analyzed information related to demographic statistics for minority and women employees (e.g., performance management, promotions, and representation at all levels of the agency); informal and formal equal employment opportunity (EEO) complaint statistics; and employee satisfaction survey results to determine whether this information suggests disparities in gender, race/ethnicity, or age
• assessed the Board's efforts to respond to complaints, employee satisfaction survey results, or other potential indications of bias or discrimination and to increase diversity throughout the agency
• evaluated the Office of Minority and Women Inclusion's (OMWI) role and involvement in monitoring the impact of the Board's personnel policies on minorities and women, as well as monitoring the Board's efforts to increase diversity in senior management positions
• identified factors that may impact the Board's ability to increase diversity in senior management positions

The scope of our audit included the Board's human resources–related functions affecting diversity and inclusion from 2011 through 2013.³  We also report on relevant management actions that were undertaken in 2014.

We acknowledge that diversity and inclusion are much broader than the areas covered in our report, and that initiatives and activities that are beyond the scope of our review also contribute to enhancing diversity and inclusion. The U.S. Office of Personnel Management (OPM) defines workforce diversity and inclusion, respectively, as follows:

[Workforce diversity is] a collection of individual attributes that together help agencies pursue organizational objectives efficiently and effectively. These include, but are not limited to, characteristics such as national origin, language, race, color, disability, ethnicity, gender, age, religion, sexual orientation, gender identity, socioeconomic status, veteran status, and family structures. The concept also encompasses differences among people concerning where they are from and where they have lived and their differences of thought and life experiences.⁴

[Inclusion is] a culture that connects each employee to the organization; encourages collaboration, flexibility, and fairness; and leverages diversity throughout the organization so that all individuals are able to participate and contribute to their full potential.⁵

For the purposes of our review, we focused on aspects of diversity and inclusion as they specifically relate to gender, race/ethnicity, and age. These three aspects of diversity were emphasized as being of particular interest in our discussions with congressional staff. The race/ethnicity categories discussed in this report follow those prescribed by the U.S. Equal Employment Opportunity Commission (EEOC) as defined in its Equal Employment Opportunity Standard Form 100, Rev. January 2006, Employer Information Report EEO-1 Instruction Booklet. These categories include White (Not Hispanic or Latino), Black or African American (Not Hispanic or Latino), Hispanic or Latino, and Asian (Not Hispanic or Latino), among others.⁶ Details on our scope and methodology are in appendix B.

The U.S. Government Accountability Office (GAO), in its Diversity Management: Expert- Identified Leading Practices and Agency Examples report, emphasized that a high-performance organization relies on a dynamic workforce with the requisite talents, multidisciplinary knowledge, and up-to-date skills to ensure that it is equipped to accomplish its mission and achieve its goals.⁷ Further, the GAO report states that the approach a high-performance organization takes toward its workforce is inclusive and draws on the strengths of employees at all levels and of all backgrounds. Diversity management creates and maintains a positive work environment where the similarities and differences of individuals are valued, so that all can reach their potential and maximize their contributions to an organization's strategic goals and objectives

Background

The Federal Reserve Act established the Board of Governors of the Federal Reserve System.⁸ The Board is composed of seven Governors appointed by the President of the United States, with the advice and consent of the United States Senate.⁹  The Board's mission is to foster the stability, integrity, and efficiency of the nation's monetary, financial, and payment systems. The Board has 14 divisions and an OIG.

Section 10 of the Federal Reserve Act¹⁰ grants the Board broad authority over matters of employment. Specifically, section 10 states that Board employment will be governed "solely" by the provisions of the Federal Reserve Act and rules and regulations of the Board that are not inconsistent with the act. As such, the Board is generally not subject to the personnel provisions of title 5 of the United States Code, including those relating to recruiting and hiring, performance management, promotions, and employee satisfaction surveys. However, as part of its employment rules, the Board has adopted EEO laws that prohibit discrimination against an individual on the basis of race, color, religion, sex, national origin, age, disability, or genetic information, and the Board promotes the full realization of equal employment opportunity through a continuing affirmative program. The Board also prohibits discrimination on the basis of any application, membership, or service in the uniformed services. In addition, as a matter of policy and although it is not required by law, the Board prohibits discrimination in employment on the basis of sexual orientation. The Board's employment rules include the provisions of the Notification and Federal Employee Antidiscrimination and Retaliation Act of 2002 (No FEAR Act) that require agencies to report EEO complaint information and to provide training at least every two years to their employees, including managers, regarding the rights and remedies available under the employment discrimination protection laws.

Guidance and Best Practices Related to Diversity and Inclusion

This section highlights guidance and best practices related to diversity and inclusion, including EEOC management directives, GAO's Standards for Internal Control in the Federal Government, and diversity management leading practices.

The EEOC is responsible for enforcing federal laws that prohibit discrimination against a job applicant or an employee because of the person's race/ethnicity, color, religion, sex, national origin, age (40 or older), disability, or genetic information. Federal law also prohibits discrimination against a person because the person complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit. The EEOC provides leadership and guidance to federal agencies on all aspects of the federal government's EEO program. The EEOC ensures federal agency and department compliance with EEOC regulations, provides technical assistance to federal agencies concerning EEO complaint adjudication, monitors and evaluates federal agencies' affirmative employment programs, develops and distributes federal-sector educational materials and conducts training for stakeholders, and adjudicates appeals from administrative decisions made by federal agencies on EEO complaints.

The EEOC's Management Directive 715 (MD-715) provides federal agencies policy guidance and standards for establishing and maintaining effective EEO programs. The Board follows the requirements of the MD-715 and annually attests to its commitment to equal opportunity in aspects of employment and fostering diversity and inclusion in the workplace.¹¹ The MD-715 provides instructions that require agencies, among other things, to report demographic data on their workforce on an annual basis. The MD-715 also provides guidance on establishing and maintaining effective programs of equal employment. The MD-715 defines the following six essential elements of a model EEO program:

• demonstrated commitment from agency leadership
• integration of equal employment opportunity into the agency's strategic mission
• management and program accountability
• proactive prevention of unlawful discrimination
• efficiency (e.g., efficient, fair, and impartial complaint resolution process)
• responsiveness and legal compliance¹²

Establishing appropriate internal controls helps agencies improve organizational effectiveness and accountability. In the context of diversity and inclusion at the Board, internal controls may assist the agency in preventing and detecting bias or discrimination in its human resources– related functions and in ensuring the accurate reporting of diversity information. GAO's Standards for Internal Control in the Federal Government contains internal control standards for federal agencies to follow; these standards incorporate elements of the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) internal control framework. COSO's internal control framework is widely used and recognized as a leading framework for designing, implementing, and evaluating the effectiveness of internal control. Similar controls are also prescribed for the accurate reporting of information. The National Institute of Standards and Technology's Special Publication 800-53, Revision 4, Security and Privacy Controls for Federal Information Systems and Organizations, outlines mandatory information security controls for federal information systems, including data output reconciliation and error correction.

GAO has reported leading practices to guide organizations in diversity management. These practices are intended to help agencies create and maintain a positive work environment where the similarities and differences of individuals are valued so that all can reach their potential and maximize their contributions to an organization's strategic goals and objectives. GAO issued Diversity Management: Expert-Identified Leading Practices and Agency Examples in response to a congressional request to report on the federal government's performance in managing its diverse workforce. In its report, GAO identifies the following nine leading diversity management practices:

Top leadership commitment—A vision of diversity demonstrated and communicated throughout an organization by top-level management.

Diversity as part of an organization's strategic plan—A diversity strategy and plan that are developed and aligned with the organization's strategic plan.

Diversity linked to performance—The understanding that a more diverse and inclusive work environment can yield greater productivity and help improve individual and organizational performance.

Measurement—A set of quantitative and qualitative measures of the impact of various aspects of an overall diversity program.

Accountability—The means to ensure that leaders are responsible for diversity by linking their performance assessment and compensation to the progress of diversity initiatives.

Succession planning—An ongoing, strategic process for identifying and developing a diverse pool of talent for an organization's potential future leaders.

Recruitment—The process of attracting a supply of qualified, diverse applicants for employment.

Employee involvement—The contribution of employees in driving diversity throughout an organization.

Diversity training—Organizational efforts to inform and educate management and staff about diversity.¹³

The GAO report states that the diversity management experts it spoke with or whose publications it reviewed generally agreed that organizations should consider a combination of these nine leading practices when developing and implementing diversity management.

The Board's Workforce

In this section, we provide information about the Board's workforce composition by sex, race/ethnicity, and age. This information provides context for the remainder of the report.

Composition of the Workforce

The Board's total workforce was 2,187 in 2011, 2,279 in 2012, and 2,353 in 2013.¹⁴ During this period, as shown in figure 1, female employees accounted for approximately 45 percent of the Board's workforce. According to the U.S. Census Bureau, females accounted for approximately 47 percent of the general workforce, as represented by the most recent five-year American Community Survey (ACS) data.¹⁵

Figure 1: Permanent Board Employees, 2011–2013, and ACS Data,^a by Sex

Source: OIG analysis of Board-provided data and the U.S. Census Bureau's ACS data. 

^aThese data are compiled through the survey, which randomly samples around 3.5 million addresses and produces statistics for five-year time periods. Return to figure

The non-White workforce population averaged 44 percent for all three years under review (figure 2). The Board's workforce is more racially diverse than the workforce represented in the ACS data, which reported a 33 percent non-White workforce for 2006–2010.¹⁶

Figure 2: Permanent Board Employees, 2011–2013, and ACS Data,^a by Race/Ethnicity^b

Source: OIG analysis of Board-provided data and the Census Bureau's ACS data.

^aThese data are compiled through the survey, which randomly samples around 3.5 million addresses and produces statistics for five-year time periods. Return to figure

^bOther includes (1) Native Hawaiian or Other Pacific Islander (Not Hispanic or Latino), (2) American Indian or Alaska Native (Not Hispanic or Latino), (3) Two or More Races/Ethnicities (Not Hispanic or Latino), and (4) Not Specified (i.e., individuals who chose not to disclose demographic data). Return to figure

To assess age diversity, we looked at two age groups: those under 40 years of age and those 40 years of age or older. We noted that employees 40 years of age or older accounted for approximately 56 to 58 percent of the Board's workforce in 2011, 2012, and 2013 (figure 3). There are no comparable ACS data on age demographics.

Figure 3: Permanent Board Employees, 2011–2013, by Age

Source: OIG analysis of Board-provided data.

Demographics by Pay Grade Category

The Board's pay structure has 22 pay grades.¹⁷ For wage employees, there are seven pay grades, or WE levels, ranging from 41 (lowest) to 47 (highest). The Board also has 14 professional pay grades, or FR levels, ranging from 16 (lowest) to 29 (highest).¹⁸ For executive-level Board staff (known as official staff or officers), the Board has one pay grade, 00, regardless of position title. For the purpose of our analysis, we grouped the wage, professional, and officer grades into the following three categories:

• senior managers and officers (FR-29 and 00)
• mid-level professionals (FR-26 to FR-28)¹⁹
• all other professional employees and all wage employees (FR-16 to FR-25 and WE-41 to WE-47)

Men held more positions than women in each pay grade category. The number of women in the mid-level professionals and senior managers and officers pay grade categories increased in all three years (appendix C, table C-3).

As illustrated in figure 4, the overall race/ethnicity concentrations within pay grade categories were relatively unchanged from 2011 through 2013. From 2011 through 2013, the Board's workforce was the most diverse in the all other professional employees and all wage employees category. During that same period, the workforce was the least diverse in the senior managers and officers category.

In each year under review, White employees as a percentage of total employees increased in each successively higher grade category. For example, in 2013, White employees accounted for approximately 42 percent of the all other professional employees and all wage employees category, 62 percent of the mid-level professionals pay grade category, and 80 percent of the senior managers and officers pay grade category. Within the mid-level professionals and senior managers and officers pay grade categories, the percentage of White employees declined while the percentage of non-White employees increased each year.

Figure 4: Workforce Distribution by Race/Ethnicity^a and Pay Grade Category, 2011–2013

Source: OIG analysis of Board-provided data. 

Note: Percentages may not total 100 due to rounding. 

^aOther includes (1) Native Hawaiian or Other Pacific Islander (Not Hispanic or Latino), (2) American Indian or Alaska Native (Not Hispanic or Latino), (3) Two or More Races/Ethnicities (Not Hispanic or Latino), and (4) Not Specified (i.e., individuals who chose not to disclose demographic data). Return to figure

Additional workforce distribution data for permanent employees by pay grade category, race/ethnicity, sex, and age are in appendix C.

Human Resource–Related Offices at the Board

Generally, the Board's human resources–related functions are performed by certain sections under the Chief Human Capital Officer within the Management Division as well as the Office of Diversity and Inclusion (OD&I), which is within the Office of the Chief Operating Officer.

Human Resources' Sections in the Management Division

Human Resources' (HR) mission is "to develop human capital strategies and services that align and support the strategic direction of the Board while creating an environment recognized as a ‘great place to work' with a high-performing, diverse workforce." The office includes several sections that provide human resources services: Talent Acquisition, Compensation, Employee Relations (ER), and Organizational Development and Learning (OD&L).

Talent Acquisition

Talent Acquisition is responsible for recruiting and hiring. Although Talent Acquisition is involved with the hiring process for all 14 divisions and the OIG, the section does not recruit for certain specialized positions. These specialized positions are legal assistants, attorneys, senior attorneys, counsels, research assistants, and economists. Board divisions that hire research assistants and economists, as well as some specialized legal positions, conduct their own recruiting and applicant screening for those positions, while Talent Acquisition conducts final processing and onboarding for the selected specialized candidates.

Compensation

Compensation conducts analysis and provides recommendations on salary offers and increases for employees based on their qualifications and market conditions. For the performance management process, Compensation ensures that employees' performance ratings are accurately recorded and reconciled before annual merit increases are finalized, as these increases are based on the employees' performance ratings.

Employee Relations

ER provides employee counseling, dispute resolution, and policy assistance, and it also facilitates formal employee relations cases. ER's responsibilities include, but are not limited to, the following:

• identifying and bringing to management's attention emerging employee relations issues and trends that may affect employee morale
• gauging employee morale and assessing the quality of human resources programs and services through outreach
• resolving workplace issues by providing consultation and counseling for management and employees
• administering the Board's grievance and disciplinary actions policies
• collecting employee performance appraisals and managing appeals of employee performance appraisals
• developing and implementing employee relations policies

Organizational Development and Learning

OD&L is responsible for improving the Board's organizational performance and employees' productivity through training and development. The section provides the following services to Board employees:

• Assessments—employee and managerial assessments to identify opportunities for growth and expansion
• Career planning—assessments and development of employee skills that add value to the Board
• Consulting—guidance on organizational transitions, strategy creation, skill-gap analysis, team-need analysis, and creative training options
• Training and classes—guidance on training classes as well as the organization of in-house training for Board employees
• Succession planning—guidance to divisions in identifying and developing staff for career advancement
• Employee engagement surveys—management of the newly adopted, agency-wide process aimed at gaining employees' feedback on the Board's work environment.²⁰

Office of Diversity and Inclusion

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires federal financial agencies to establish an OMWI to be responsible for all agency matters related to diversity in management, employment, and business activities. The Board established the OD&I in January 2011 to house in one organization its existing EEO function; its diversity and inclusion programs for minorities, women, and other Board employees; and the Dodd-Frank Act OMWI activities related to financial education, supplier diversity, and regulated entities.

The Board's EEO function follows the regulations set forth in title 12, part 268, of the Code of Federal Regulations. These provisions are included in the Board's policy, program, and procedures for providing equal opportunity to Board employees and applicants for employment. In addition, the Board's EEO function manages the Board's EEO complaint process; regulatory reporting, such as that set forth in the MD-715; and EEO training.

In accordance with the Dodd-Frank Act, the Board's OD&I is responsible for the following:

• developing and implementing standards and procedures to ensure, to the maximum extent possible, the fair inclusion and utilization of minorities and women in all activities of the Board
• developing standards for assessing the diversity policies and practices of entities regulated by the Board
• submitting to Congress an annual report regarding actions taken by the Board since the previous report, to include successes achieved and challenges faced by the Board in operating minority and women outreach programs; challenges the Board may face in hiring qualified minority and women employees and contracting with qualified minority-owned and women-owned businesses; and any other information, findings, conclusions, and recommendations for legislative or agency action, as appropriate

The OD&I is also responsible for diversity and inclusion programs that support recruiting and hiring.

Human Resources–Related Functions at the Board

The five human resources–related functions pertaining to diversity and inclusion that are covered in this report and the respective offices with primary or secondary responsibilities for these functions are shown in table 1.

Table 1: Board Offices Responsible for Select Human Resources–Related Functions

Office	Human resources–related functions at the Board
	Recruiting and hiring	Performance management	Promotions and succession planning	Employee complaints	Employee surveys
Human Resources
Employee Relations		primary for collecting		primary for non-EEO	primary for exit surveys
Organizational Development and Learning			primary for succession planning		primary for engagement surveys
Talent Acquisition	primary for general professional and wage secondary for officers		secondary for promotions
Office of Diversity and Inclusion
Diversity and Inclusion	secondary
Equal Employment Opportunity				primary for EEO
All Board divisions
Divisions	primary for specialized positions and officers	primary for conducting	primary for promotions

Source: OIG analysis of Board-provided documents and interviews.

The congressional request that initiated our work asked us to examine certain components of the Board's personnel-related functions with respect to diversity and inclusion. We identified these functions to include recruiting and hiring; performance management; promotions and succession planning; complaints; employee satisfaction surveys; and, more generally, the OD&I's overall efforts to enhance diversity and inclusion at the Board. Our findings and recommendations related to each of these activities are discussed in the remaining sections of this report.

• 1. The congressional request letter is in appendix A. Return to text
• 2. The OIGs that received similar requests are those for the U.S. Department of the Treasury's Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the U.S. Securities and Exchange Commission. Return to text
• 3. The Board generally operates on a calendar-year basis; however its performance management process is on a fiscal-year basis. Return to text
• 4. U.S. Office of Personnel Management, Government-Wide Diversity and Inclusion Strategic Plan 2011. Return to text
• 5. U.S. Office of Personnel Management, Government-Wide Diversity and Inclusion Strategic Plan 2011. Return to text
• 6. For the purposes of this report, we grouped the following race/ethnicity categories as Other due to the small number of individuals typically represented in each of these categories: (1) Native Hawaiian or Other Pacific Islander (Not Hispanic or Latino), (2) American Indian or Alaska Native (Not Hispanic or Latino), (3) Two or More Races/Ethnicities (Not Hispanic or Latino), and (4) Not Specified (i.e., individuals who chose not to disclose demographic data). Return to text
• 7. U.S. Government Accountability Office, Diversity Management: Expert-Identified Leading Practices and Agency Examples, GAO-05-90, January 14, 2005. Return to text
• 8. The Federal Reserve System comprises the Board, the 12 regional Federal Reserve Banks, and the Federal Open Market Committee. Return to text
• 9. 12 U.S.C. § 241. Return to text
• 10. 12 U.S.C. § 244. Return to text
• 11. In May 2014, the Board published The EEO Complaint System and How It Works, which contains Chair Janet Yellen's attestation to the Board's commitment to providing equal employment to all persons. Return to text
• 12. Equal Employment Opportunity Commission, Management Directive 715, October 1, 2003. Return to text
• 13. U.S. Government Accountability Office, Diversity Management: Expert-Identified Leading Practices and Agency Examples, GAO-05-90, January 14, 2005. Return to text
• 14. The OIG was excluded from this audit to maintain its independence. In addition, the total workforce numbers do not include temporary employees or interns. Return to text
• 15. The U.S. Census Bureau entered into a reimbursable agreement with a consortium of four federal agencies—the EEOC, the U.S. Department of Justice, the Office of Federal Contract Compliance Programs at the U.S. Department of Labor, and OPM—to create a custom tabulation identified as the EEO Tabulation 2006–2010 and referred to as the five-year ACS data. The five-year ACS data serve as the primary benchmark for comparing the race, ethnicity, and sex composition of an organization's workforce with that of the analogous external labor market within a specified geography and job category. Return to text
• 16. The race/ethnicity categories discussed in this report are the same as those prescribed by the EEOC in its Equal Employment Opportunity Standard Form 100, Rev. January 2006, Employer Information Report EEO-1 Instruction Booklet. Return to text
• 17. The Board's salary structure does not map to the federal government's General Schedule pay structure. Return to text
• 18. In January 2014, the Board added the FR-30 pay grade. This pay grade was not included in our analysis. As of March 2015, there were no incumbents at this pay grade. Return to text
• 19. Mid-level professionals may include supervisors and managers. Return to text
• 20. The Board refers to the employee satisfaction survey as an engagement survey. Return to text