What is Adverse Impact Analysis? How do you measure it?

What is Adverse Impact Analysis? How do you measure it?

Sugandha SrivastavaJanuary 5th, 20247 min read

Adverse impact refers to employment practices that may appear unbiased but have a discriminatory impact on a protected group. This phenomenon can manifest in various employment stages, including hiring, promotion, training, development, transfer, layoff, and performance appraisals. Adverse impact may be evident in an overall procedure or at any specific step within that procedure. Whether in a comprehensive process or a specific element, the effects of adverse impact can be far-reaching.

The term "adverse impact" is often used interchangeably with "disparate impact," a legal term stemming from a significant U.S. Supreme Court decision, Griggs v. Duke Power Co., 401 U.S. 424, 431-2 (1971).

In 2018, prioritizing fair and inclusive hiring practices emerged as a significant focus for recruiting teams. According to LinkedIn's 2018 Global Recruiting Trends Report, 78% of respondents considered "Diversity" as either "Very Important" or "Extremely Important," surpassing other trends by a considerable margin.

This emphasis on diversity is grounded in compelling reasons. Research indicates that diverse teams place a greater emphasis on empirical data, demonstrate increased innovation, generate higher revenue, and achieve superior performance outcomes. Beyond the business benefits, promoting fairness in hiring is fundamentally the right course of action.

What Is Adverse Impact Analysis?

Adverse impact analysis involves utilizing metrics to identify discriminatory effects on individuals within protected classes during various human resource processes. In the United States, federal law prohibits discrimination based on race, color, national origin, religion, sex, age, or disability, collectively referred to as protected classes. Adverse impact can manifest in any step of an HR process, encompassing candidate selection, decision-making in hiring, performance appraisals, promotions, as well as force reductions and layoffs. The analysis is crucial for ensuring compliance with anti-discrimination laws and promoting fair and equitable practices throughout the entirety of human resource management.

How Is Adverse Impact Analysis Performed?

Adverse impact analysis relies on the four-fifths rule, commonly known as the 80% rule, which was established in 1978 as part of the Uniform Guidelines for Employee Selection Procedures (UGESP). The UGESP was collaboratively developed and adopted by the Equal Employment Opportunity Commission (EEOC), Department of Labor, Department of Justice, and the Civil Service Commission. The four-fifths rule compares the selection rates of different demographic groups during employment processes.

As per the UGESP, "a selection rate for any race, sex, or ethnic group which is less than four-fifths (or 80%) of the rate for the group with the highest rate will generally be regarded by the Federal enforcement agencies as evidence of adverse impact, while a greater than four-fifths rate will generally not be regarded by Federal enforcement agencies as evidence of adverse impact."

Here are two examples illustrating adverse impact analysis in the context of hiring:

Example with Adverse Impact:

  • Pool of 300 applicants: 175 non-minority, 125 minority.
  • Non-minority hire rate: 11.4% (20 hires).
  • Minority hire rate: 8% (10 hires).
  • According to the four-fifths rule, the minority selection rate should be at least 80% of the non-minority rate. However, 8% is not at or above 80% of 11.4%, indicating adverse impact on minority applicants.

Example without Adverse Impact:

  • Pool of 300 applicants: 150 non-minority, 150 minority.
  • Non-minority hire rate: 12% (18 hires).
  • Minority hire rate: 10% (15 hires).
  • In this case, the minority selection rate (10%) is higher than 80% of the non-minority rate (9.6%), indicating no adverse impact.

These examples demonstrate how the four-fifths rule is applied to assess whether adverse impact exists in the hiring process based on the selection rates of different demographic groups.

Can Adverse Impact Analysis Be Used To Minimize Bias In Hiring?

Adverse impact analysis is commonly seen as a reactive practice, but when integrated with validated pre-employment assessments, it can lead to the reduction or elimination of bias, thereby minimizing adverse impact in the hiring process. Job simulation assessments, such as Intervue’s Virtual Job Tryout, are designed to have lower rates of adverse impact. This is attributed to their focus on measuring core competencies directly tied to job performance. Assessments employing job simulations aim to minimize bias and often exhibit higher predictive validity compared to other assessment types.

Companies like Intervue can customize Virtual Job Tryouts for specific roles within an organization, contributing to the organization's objectives of enhancing new hire performance and retention. Continuous monitoring of group differences is essential to ensure that the Virtual Job Tryout consistently achieves the desired performance and retention outcomes. Intervue employs advanced analytics to measure adverse impact at intervals, allowing proactive adjustments to customized pre-employment assessments. This proactive approach helps minimize bias and ensures that organizations attract and select the most qualified talent. To delve deeper into the realm of pre-employment assessments, organizations are encouraged to explore additional resources.

Metrics and Technology

The concept of adverse impact discrimination is intrinsically linked to the application of metrics, with the 4/5ths rule serving as a key metric to assess potential disparities in selection rates among different demographic groups. As a rule of thumb, the 4/5ths rule establishes an 80% threshold, and falling below this threshold may indicate adverse impact.

Given the quantitative nature of adverse impact analysis, compliance with relevant laws often necessitates the use of technology. This can be achieved through various means, including:

Spreadsheets: Organizations can develop and utilize spreadsheets internally to calculate adverse impact metrics. These spreadsheets can be customized to analyze selection rates, assess compliance with the 4/5ths rule, and provide a visual representation of the data.

Specialized Computer Applications: There are specialized software applications designed to facilitate adverse impact analysis. These tools often offer advanced features for data processing, statistical analysis, and visualization, streamlining the calculation process and enhancing accuracy.

Consultants: Organizations may seek the assistance of external consultants who specialize in adverse impact analysis. These professionals bring expertise in both the legal and statistical aspects of compliance, and they often use advanced tools and methodologies to conduct thorough analyses.

Adverse Impact Calculation Spreadsheet: The mention of an "Adverse Impact Calculation Spreadsheet" suggests the availability of a specific tool designed for this purpose. Such a spreadsheet may include predefined formulas and templates to simplify the calculation process and ensure consistency in analysis.

Technology plays a crucial role in handling the large volumes of data involved in adverse impact analysis. Automated tools can expedite the process, reduce errors, and provide a more comprehensive understanding of potential disparities in hiring, promotion, or other employment practices.

It's important for organizations to choose the approach that aligns with their resources and needs. Whether using in-house spreadsheets, specialized software, or external consultants, the goal is to ensure accurate and compliant adverse impact analyses, fostering fair and equitable employment practices.

Global Issues

Many countries lack laws specifically addressing adverse impact discrimination, a concept that originated largely in the United States. However, there are indications that this idea is gaining recognition in the European Union, where it is referred to as "indirect discrimination." The United States places a significant emphasis on combating adverse impact discrimination due to its history as a nation of immigrants, leading to historical conflicts based on race, religion, and other factors. Consequently, U.S. laws aim to eliminate employment discrimination, even when it occurs unintentionally.

Human resources professionals should familiarize themselves with the cultural norms and practices of other societies to prevent indirect (or adverse impact) discrimination in those countries. This is particularly crucial when foreign companies engage in business within the United States. Despite not being illegal in certain nations, adverse impact discrimination can still have adverse effects on organizational success.

Best-Practice Recommendations

The Center for Corporate Equality's Technical Advisory Committee Report on Best Practices in Adverse Impact Analyses, issued on September 15, 2010, provides comprehensive recommendations based on input from leading experts in the field. With a focus on improving how adverse impact analyses are conducted, the report challenges certain traditional practices, including the effectiveness of the 80 percent rule from the Uniform Guidelines on Employee Selection Procedures (UGESP).

Key Findings:

  1. Concerns about the 80 Percent Rule: The report questions the efficacy of the 80 percent rule, suggesting that its continued use may be tied to the existence of UGESP. It implies that alternative methods and considerations may offer more accurate and insightful analyses.

Simultaneous Analysis of Internal and External Job Seekers: When internal and external job seekers apply for the same requisition simultaneously, analyzing them together is considered reasonable. However, if they are not being considered simultaneously, separate pools for analysis are deemed reasonable.

Different Burdens of Proof for Disparate Impact and Treatment: While the statistical methodologies for disparate impact and disparate treatment may be similar, the material facts of the case and the ultimate burden of proof are distinct.

Actionable Adverse Impact: Defining actionable adverse impact requires considering context. Contextual factors must be taken into account before deeming observed differences in selection rates as legally actionable.

Consideration of Context in Aggregating Data: Context is crucial when deciding whether applicant data can be reasonably aggregated. Aggregating data across multiple locations may be appropriate if the selection process is standardized and consistently applied.

Statistically Significant Disparity for Total Minority Aggregate: A statistically significant disparity for the "total minority" aggregate, without specific indicators for individual protected classes, may not be legally actionable in most situations.

Other Recommendations:

Criteria for Applicant Inclusion: To be considered an applicant in an adverse impact analysis, a job seeker must meet specific criteria, including expressing an interest, following application rules, meeting basic qualifications, being considered by the organization, and not withdrawing from the application process.

Treatment of Multiple Applications: Applicants submitting more than one application for an open position should be counted only once in the adverse impact analysis.

Counting Applicants Offered a Job: Applicants offered a job should be counted as selections regardless of whether they accept the offer.

Inclusion of Statistical and Practical Significance: Measures of statistical and practical significance should be included in determining the existence of adverse impact.

Consideration of Degree of Structure in Selection Process: The decision to aggregate data across jobs, locations, or requisitions should consider the degree of structure in the selection process and numerical and demographic similarities.

Understanding Pattern or Practice Scenarios and Adverse Impact: Distinctions between pattern or practice scenarios and adverse impact should be acknowledged. Disparity analyses play significant roles in both scenarios, but understanding the employment process being analyzed is crucial.

This report serves as a valuable resource for HR professionals conducting affirmative action plans and adverse impact analyses, providing nuanced insights and recommendations to enhance the effectiveness of these practices.

Wrapping It Up

Adverse impact analysis is a critical tool for identifying and addressing discriminatory effects in various stages of the human resource management process. The four-fifths rule, established in the Uniform Guidelines for Employee Selection Procedures, serves as a key metric to assess potential disparities among demographic groups. While often viewed as a reactive practice, when integrated with validated pre-employment assessments, adverse impact analysis can proactively minimize bias in hiring. Technology, such as specialized software or consultants, plays a crucial role in conducting accurate and compliant analyses. Best-practice recommendations from the Center for Corporate Equality highlight the need for contextual considerations, simultaneous analysis of internal and external job seekers, and a nuanced approach to disparate impact and treatment. Ultimately, a comprehensive understanding of adverse impact supports organizations in fostering fair and equitable employment practices, aligning with the global emphasis on diversity and inclusion.

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