Abstract
Although diversity and inclusion have been studied extensively, equity is the relatively underexplored component of DEI. The present study addresses this gap by examining the influence of equity on organization-level outcomes through the lens of management ethnic representativeness (MER), which reflects the alignment between the racioethnic profiles of employees and management. We integrate signaling and equity theories to hypothesize that organizational equity signals elicit employee productivity, ultimately impacting the organization’s bottom line. Specifically, we hypothesize that MER has a positive indirect relationship with organizational performance through operational performance, especially in more racioethnically diverse organizations. Our model is tested through three field studies and an experiment (along with two supplemental studies). Across multiple studies including archival national survey data (Study 1), a large, US-based retail organization (Study 2), five years of professional sports panel data (Study 3), and an experiment (Study 4), we found consistent evidence that MER is associated with higher operational performance and, by extension, greater organizational performance, particularly in units with greater racioethnic diversity. Additionally, we observed that MER is related positively to perceived equity when organizations are more racioethnically diverse. We discuss the theoretical and practical implications of our study findings.
Programs designed to promote diversity, equity, and inclusion (DEI) in organizations are becoming increasingly controversial in the United States. For example, over 20 states have proposed anti-DEI legislation targeting state-funded organizations such as government agencies and universities (Lu et al., 2023). At the federal level, the White House issued an Executive Order to “coordinate the termination of all discriminatory programs, including illegal DEI and [DEIA] (accessibility) mandates” (Trump, 2025). Regardless of controversy, there is a rich literature on how DEI impacts organizations. Recent reviews (e.g., Roberson, 2019) show that diversity can be an organizational asset or liability depending on the organizational context. Likewise, recent meta-analytic evidence demonstrates that more inclusive climates foster employee commitment and productivity as well as higher collective performance (Holmes, Jiang, Avery, McKay, Oh, & Tillman, 2021).
That said, equity research—the E within DEI—has been far less prevalent (Hatter, Avery, & McKay, 2024). This gap in equity research is perhaps reflected in the Society for Human Resource Management’s (SHRM) decision to remove “equity” from its Inclusion, Equity, and Diversity framework, citing the lack of a universally accepted definition (Golden, 2024; SHRM, 2024). Though this prompted criticism from the field (Mohan, 2024; Ruggs & Holmes, 2024), the importance and impact of equity are not well known. As such, we assert that equity, defined as “fair and impartial processes regarding employer practices, whereby individuals have equal access to opportunities and structural inequalities are acknowledged” (To, Sherf, & Kouchaki, 2024: 126), is distinct from diversity and inclusion. Diversity refers to the “compositional difference among people within a work unit” (Roberson, Ryan, & Ragins, 2017: 70). Inclusion involves “the degree to which an employee perceives that he or she is an esteemed member of the work group through experiencing treatment that satisfies his or her needs for belongingness and uniqueness” (Shore, Randel, Chung, Dean, Holcombe, & Singh, 2011: 1265). As a distinct construct, we contend that equity is worthy of scientific inquiry and can influence organizational functioning.
Though this definition of equity aligns with organizational justice principles focusing on workplace fairness, the two concepts are distinct. Organizational justice literature shows fairness perceptions relate positively to attitudes and performance (e.g., Colquitt et al., 2013; Petsko & Rosette, 2023; Whitman, Caleo, Carpenter, Horner, & Bernerth, 2012). However, fairness perceptions may not always indicate equity. A core tenet of organizational justice is consistent identical treatment (i.e., equality) that, sometimes, can be inequitable, such as treating blind and sighted employees in the same manner. Equity specifically acknowledges inequalities that can disproportionately impact some versus others. This distinction is important in diverse organizations because some groups may require accommodations that others do not to establish equity (Cox, 1993). Accommodating these groups rather than requiring assimilation to a universal standard is a hallmark of effective diversity management, but it is also why many critics oppose initiatives aimed at heightening organizational equity. This suggests that organizational justice findings may not generalize well to equity.
While equity is often discussed in the abstract, the focus of our research is racioethnic 1 equity as it is particularly critical in organizational settings due to historical exclusion of racioethnic minorities from leadership roles and its impact on perceptions of fairness and legitimacy in decision-making (Avery, Hall, Preston, Ruggs, & Washington, 2023). Additionally, racioethnic inequities in leadership and advancement remain a persistent and well-documented issue across industries (Avery et al., 2023; Lindsey, Avery, Dawson, & King, 2017). In fact, racioethnic disparities in leadership can reinforce biases about who is seen as a prototypical leader (think leader, think white; Petsko & Rosette, 2023), making representation an important visible signal of whether an organization is truly equitable (Emerson & Murphy, 2014). Therefore, an organization having equitable representation in unit-level management would signal a comparable valuation of all employees, irrespective of racioethnicity.
Accordingly, racioethnic equity becomes particularly salient when examining who is selected for or promoted into leadership positions. Management ethnic representativeness (MER), an indicator of how well an organization aligns its leadership demographics with its broader workforce, offers a tangible signal of equitable HR processes across racioethnic groups (Lindsey et al., 2017). We propose that MER has symbolic value in organizations that are apt to vary across organizational contexts. In organizations that primarily promote from within, MER provides a visual cue about an employee’s potential for advancement. Conversely, when management is recruited externally, MER signals the extent to which organizational hiring practices support representation. Thus, we assume that employees collectively evaluate and perceive higher levels of MER as racioethnic equity. Building on this assumption, we argue that MER serves as a signal to employees of the organization’s racioethnic equity.
The present study examines how organizational racioethnic equity, as seen through the lens of MER, influences organizational performance (i.e. external outcomes related to an organization’s financials and product market; Ployhart & Hale, 2014; Tsui, Pearce, Porter, & Tripoli, 1997; Wang, Tsui, Zhang, & Ma, 2003). Using signaling theory (Connelly, Certo, Reutzel, DesJardine, & Zhou, 2025; Spence, 1973) as our primary framework complemented by equity theory (Adams, 1963), we argue that MER signals equitable treatment across racioethnic groups, increasing operational performance (i.e. internal organizational outcomes such as productivity; Ployhart & Hale, 2014) from the collective workforce, ultimately resulting in increased organizational performance. We also consider how organizational racioethnic diversity moderates this relationship. Specifically, we suggest that organizations with higher MER are perceived as especially equitable when the overall workforce is higher in racioethnic diversity. This increased perception of equity leads to better operational and organizational performance.
The current paper contributes to the management and DEI literature in several ways. First, while diversity and inclusion have received significant attention, equity remains underexplored, partly due to inconsistencies in its definition, particularly in light of its potential implications for leadership representation and workforce outcomes. This paper addresses this gap by examining how equity, distinct from general fairness perceptions, influences organizational performance. Conceptually and empirically, we distinguish equity from diversity and inclusion and show that racioethnic equity uniquely contributes to organizational functioning. Second, we identify an important boundary condition by showing how unit racioethnic diversity makes equity signals stronger. Third, we conceptualized MER as a visual cue of organizational racioethnic equity because it measures the alignment of a company’s managerial racioethnic composition with its workforce. This alignment can signal equitable HR practices across racioethnic groups. This goes beyond the signaling potential of just looking at the demographic diversity of organizational leaders as prior studies have (Miller & del Carmen Triana, 2009). Finally, integrating signaling and equity theory, we explicate how employees interpret racioethnic equity signals, shaping perceptions of equitable advancement and selection structures at their workplace and influencing collective workforce productivity and performance. In doing so, we expand the nomological net of MER by studying its implications at the unit level to include collective workforce behavior (productivity) and organizational-level outcomes (performance). In contrast, previous MER research has investigated individual-level perceptions of mistreatment (Lindsey et al., 2017). In the sections that follow, we review and integrate signaling and equity theories, using them to develop a model that predicts how MER influences organizational performance (see Figure 1). We test this model using three complementary field studies and an experiment.
Theoretical Model
Theoretical Background
Integrating Signaling & Equity Theories
Signaling theory centers on a single tenet: Signals are meant to redress information asymmetry, a situation when one party possesses information that the other does not (Connelly, Certo, Ireland, & Reutzel, 2011; Connelly et al., 2025; Spence, 1973, 2002). Information asymmetry should be considered continuous rather than binary, as “one party is not fully aware of the characteristics of another party” (Connelly et al., 2011: 42; Stiglitz, 2000). The qualifier fully is important because it indicates that parties may have full, partial, or no awareness of information. Signalers often communicate information to stakeholders via signals. Receivers use these signals to form impressions of the signaler and determine how to behave. Additionally, other signaler characteristics can influence the receiver’s perception (Connelly et al., 2011). Signalers include not just people, but also organizations, often personified as the managing supervisors who enact organizational strategies and processes (Connelly et al., 2011; Richard, Triana, & Li, 2021). Receivers of organizational signals include stakeholders such as the collective workforce and prospective applicants (Connelly et al., 2011; Lindsey et al., 2017), whose shared perceptions can manifest in collective responses (Chen & Kanfer, 2006; Kozlowski & Ilgen, 2006).
Though signaling theory explains communication under information asymmetry, it offers limited insight into recipient interpretation and sensemaking. Specifically, signaling theory does not account for how receivers ascribe meaning to the signals they perceive. Therefore, we rely on equity theory (Adams, 1963) to describe this sensemaking process. Equity theory posits that individuals assess fairness within organizations by comparing their own ratio of inputs to outcomes with ratios of relevant others and adjusting their behavior based on perceived equity levels (Adams, 1963, 1965). Next, we integrate these theories and apply them to the current study.
Whereas an organization has comprehensive access to its human resource data indicating the presence and prevalence of equal employment opportunity throughout its system (organizational equity), its stakeholders typically do not. Due to this information asymmetry, stakeholders may rely on readily available visual cues and signals to surmise organizational equity (Connelly et al., 2011). One such cue is the racioethnic profiles of the organization’s workforce and management teams (Avery, 2003). Racioethnicity is a surface-level demographic characteristic that spurs almost immediate social categorization due to it being “among the most psychologically potent and morally charged” (Chatman, 2010: 448) demographic attributes. In addition to the automatic classification of individuals, people form accurate perceptions about group-level characteristics such as racial diversity and hierarchy by simply observing groups (Phillips, Slepian, & Hughes, 2018). Because people tend to be exposed regularly to others in their workplace, we argue that they can (and do) deduce the racioethnic profiles of their management and workforce (Lindsey et al., 2017).
Assuming this signal is observed, receivers then go through the “process of translating signals into perceived meaning,” also known as receiver interpretation (Connelly et al., 2011: 54). Equity theory complements signaling theory when explaining how employees may interpret MER as an equity signal. Stakeholders should form equity perceptions by observing and then comparing the racioethnic composition of leadership with that of the broader workforce. Given that employees interpret how the organization treats them as a signal (Eisenberger, Huntington, Hutchison, & Sowa, 1986; Kurtessis, Eisenberger, Ford, Buffardi, Stewart, & Adis, 2017; Matusik, Ferris, & Johnson, 2022), they may rely on MER to determine the extent to which human capital leads to equal employment opportunities across racioethnic backgrounds. Consistent with established research on collective sensemaking, we assume signal interpretations aggregate to the collective unit through social information processing via articulation and communication to build consensual and shared understanding (Stigliani & Ravasi, 2012; Weick, Sutcliffe, & Obstfeld, 2005). This collective interpretation then influences group beliefs and behavior (Bosse, Phillips, & Harrison, 2009; Connelly et al., 2011; Langfield-Smith, 1992).
It is important to note that MER is not an indicator of workforce diversity (Lindsey et al., 2017). In fact, high MER is possible in very homogenous or very heterogeneous organizations and in contexts between those two extremes. For example, a firm may have low racioethnic diversity (100 white employees) and still have high MER (10 white managers). Also, an organization with higher diversity (50 white, 30 Hispanic, 10 Black, and 10 Asian employees) and adequate representation in management (5 white, 3 Hispanic, 1 Black, and 1 Asian managers) would also have high MER. This is because there is perfect alignment between the racioethnic profiles between staff and management in both organizations. Conversely, low MER may be present in a highly diverse workforce (50 white, 30 Hispanic, 10 Black, and 10 Asian employees) with a relatively homogenous management team (10 white managers) or a firm with a homogenous workforce (100 white employees) and diverse management team (5 white, 3 Hispanic, 1 Black, and 1 Asian managers). When MER is high, it can be surmised that racioethnic groups are being promoted at similar rates, which can be interpreted as equitable treatment in the promotion process for all employees regarding racioethnicity. Conversely, low MER reflects a disconsonant racioethnic profile between the management team and employees, precipitating perceptions of inequitable treatment.
Beyond influencing employees’ perceptions of their personal advancement opportunities, MER can be a cultural signal of the organization’s identity and a reflection of its broader commitment to equity as a core value (Nishii, 2013; Roberson, 2019). Equity, in this sense, is not just about whether individuals feel they personally have equal chances for advancement, but about whether the organization demonstrates fairness in leadership opportunities across groups (Avery et al., 2023). When employees observe a leadership team that reflects the broader workforce, they may interpret this as evidence that the organization values fairness in its decision-making processes. Research suggests that employees assess the credibility and legitimacy of organizational practices based on observable indicators of fair treatment that can influence workplace attitudes and behaviors (Ployhart & Hale, 2014).
Thus, MER functions as both a structural indicator of equitable leadership practices and a visible signal of the organization’s broader commitment to equity, shaping how employees collectively interpret and respond to their work environment. This distinction is particularly important because it underscores how higher MER can influence workplace attitudes and behaviors beyond individual perceptions of promotion likelihood, reinforcing a sense of credibility and trust in organizational processes. Continuing in this vein, lower MER “signals to incumbent employees that there is not truly equal opportunity with regard to ethnicity for advancement within the organization” (Lindsey et al., 2017: 2).
Nevertheless, the impact of MER remains largely uncertain due to the lack of research on this type of relationship congruency between front-line employees and unit-level management. This organizational relationship is particularly unique because of the managers’ physical and psychological proximity (i.e., hierarchical distance) to the employees of note (for reviews, see Antonakis & Atwater, 2002; Collinson, 2005). For the purpose of this paper, we focus on interactions between front-line employees and their immediate management teams. Greater distance between the employee and management can neutralize leadership behaviors and messages (Kerr & Jermier, 1978), decrease the quality of exchanges (Bass, 1990), and reduce management’s influences on employees (Antonakis & Atwater, 2002; Daft & Lengel, 1984). Therefore, the unit-level management should have the strongest influence on employees’ sense of equity within the organization.
Although the preceding section purports that MER serves as a salient signal regarding organizational equity, the meaning of this signal may differ based on other information about the organization (signaler characteristics) or organizational context (Connelly et al., 2011). Despite relatively little research on signaler characteristics, the few exceptions have uncovered that signals and signaler characteristics can interact when predicting receiver reactions (Gomulya & Boeker, 2014; Inesi & Cable, 2015). In the current study, we suggest that organizational racioethnic diversity is an important characteristic that influences how an equity signal may be interpreted. As we argued earlier, MER and workforce diversity are not synonymous. Rather, diversity can serve as a signaler characteristic that aids receivers with the sensemaking process.
Hypothesis Development
Given that MER may serve as a visible signal of an organization’s commitment to racioethnic equity, particularly regarding leadership representation, employees may interpret this as an indicator of fair access to advancement opportunities and organizational inclusivity. Prior research suggests organizations that promote representation in leadership can foster stronger employee motivation and performance (Gavino, Wayne, & Erdogan, 2012). Employees who perceive leadership as representative and equitable may be more likely to engage in positive workplace behaviors that enhance organizational performance.
Equity is not simply about fairness in procedures and outcomes, but also incorporates recognizing and correcting conventional disadvantages. Whereas signals of organizational equity may promote distributive and procedural justice by demonstrating equal advancement opportunities and consistent treatment (Colquitt, Conlon, Wesson, Porter, & Ng, 2001; Cropanzano, Fortin, & Kirk, 2015), they also acknowledge structural inequalities. This is similar to the notion of structural integration that involves the presence of diversity across organizational “function, level, and individual work group” rather than relying solely on overarching summary statistics (Cox, 1991: 36). This is necessary because organizations that appear diverse as whole may still have segregation within them, particularly in positions involving greater prestige and power (Cox, 1993). Therefore, higher MER (or what Cox terms smaller interlevel gaps) should precipitate both general fairness perceptions as well as indicate an organization’s commitment to dismantling structural barriers that have historically disadvantaged certain racioethnic groups in accessing leadership positions within that organization.
Empirical assessments of MER are scarce (Shon, Perry, Elmore, & Mendelsohn, 2024). In one of the few exceptions, Lindsey et al. (2017) found that MER has implications for individual-level sensemaking regarding identity-based (mis)treatment. As an extension, we believe the same equity-based sensemaking process can be applied in positive atmospheres. Because MER can be interpreted as a signal of equitable employment opportunity and treatment, higher levels of MER should foster employee engagement, motivation, and overall organizational performance. Therefore, a heightened collective effort should be accompanied by higher employee performance and improved organizational outcomes, such as increased profitability. To make this argument, we must acknowledge that performance is a multidimensional construct. The two most widely acknowledged dimensions are operational and organizational performance; both capture performance, yet are distinct. Operational performance is “internal to a firm and is based on such outcomes as collective employee job performance, productivity, safety, and related metrics” (Ployhart & Hale, 2014: 149). Organizational performance is “external to a firm and is based on accounting, financial, and product market (e.g., customer satisfaction) outcomes” (Ployhart & Hale, 2014: 149).
We contend that firm operational performance is shaped by employees’ perceptions of equity. Employees interpret the treatment they receive from the organization as indicative of equity (Carrell, 1978). Importantly, these perceptions influence both cognition and behavior, determining how the employer is viewed and how well employees perform their jobs (e.g., Dittrich & Carrell, 1979; Oldham, Kulik, Ambrose, Stepina, & Brand, 1986). Conceptually, this process resembles that described by Bowen and Ostroff (2004) in their highly influential model linking human resource management (HRM) systems to firm performance. They proposed that strong HRM systems influence employee perceptions of the workplace that “may emerge as a shared organizational climate, which, in turn, ultimately relates to organizational performance” (p. 205). A key determinant of system strength is consistency, which pertains to employees having similar experiences with the organization’s various HRM functions. In the present context, we contend that MER serves as a signal about the equity of an employer’s HRM system (e.g., selection, appraisal, and promotions). Namely, it indicates consistency across racioethnic groups concerning these HRM practices, which has important implications for the signaling capacity of MER because “shared meanings cannot be developed unless most or all employees are subjected to and can perceive the same practices” (Bowen & Ostroff, 2004: 208-209). Accordingly, lower levels of MER could elicit discordant perceptions of opportunity within the organization because of the racioethnic imbalances across hierarchical levels. Conversely, higher levels of MER should promote a shared sense of equitable treatment that facilitates productive collective action benefitting operational performance (Whitman et al., 2012). Though not a direct assessment of our theorizing, recent research demonstrated that firms with racial diversity congruence between upper- and lower-level management experience higher operational performance (i.e., productivity) levels (Richard et al., 2021). Companies with better operational performance tend to experience organizational performance benefits as well because heightened productivity translates directly into organizational financial performance (Kim & Ployhart, 2014).
The preceding discussion leads us to anticipate that higher MER signals to employees that the organization promotes equitable employment experiences. Employees interpret representative leadership as a signal that their organization values equitable access to leadership, whether through direct employee advancement or through addressing other barriers to access. This, in turn, enhances their motivation and commitment to work harder and increase their discretionary efforts, thereby enhancing unit-level productivity. More productive organizations stand to experience positive bottom-line consequences such as heightened profitability. Collectively, this suggests an indirect effect of MER on financial performance through productivity. Therefore, we hypothesize:
Hypothesis 1: There is a positive indirect effect of MER on organizational performance through operational performance.
Moderating Role of Unit Diversity
Additionally, we propose that the impact of MER as an organizational equity signal is contingent on the racioethnic diversity in the organization (an additional signaler characteristic). This is because the issue of racioethnic equity becomes more salient, and thus, is likely to be more impactful in diverse organizations. Diversity refers to “compositional difference among people within a work unit” (Roberson et al., 2017: 70). When there is little to no racioethnic diversity within a context, most people are unlikely to notice racioethnicity. As diversity increases, however, racioethnicity becomes increasingly salient as more social categorization along this dimension is occurring (Brewer, 1991; Harrison & Klein, 2007).
As diversity increases, the racioethnic identity salience of all employees increases—not just those belonging to historically marginalized groups. For instance, members of socially dominant group members (i.e., white men) experience increased racioethnic identity salience in environments where they are in the numerical minority (e.g., Historically Black Colleges and Universities; Peterson & Hamrick, 2009). This higher salience occurs because the greater racioethnic differences present in such contexts promote categorization of personnel along racioethnic dimensions. This categorization enhances the likelihood of employee treatment being viewed through a racioethnic lens, with any perceived positive treatment precipitating identity affirmation (e.g., feeling valued) and any perceived negative treatment fueling identity threat (e.g., discrimination). We argue that in racioethnically diverse organizations, there is a greater need to enact equitable HR practices and policies to help maximize the former and minimize the latter. Additionally, this would further demonstrate “structural integration” wherein an organization may be diverse in aggregate and equally so across levels (Cox, 1993). Thus, high MER would be a stronger signal of equity, as it should reflect the organization’s commitment to equal representation of their staff in leadership rather than just diversity.
Consistent with this premise, Lindsey et al. (2017) found that MER exerted a significantly greater impact on the sensemaking processes of those who were more racioethnically dissimilar from their colleagues (another factor that makes racioethnicity more salient). This may suggest that in an organization with higher diversity (where average dissimilarity also tends to be higher; Harrison & Klein, 2007), MER is more apt to influence perceptions of the organization. As such, MER would be a stronger signal of equity in more diverse units, where racioethnic representation in leadership is likely to be scrutinized more closely.
This argument remains consistent with tenets of Bowen and Ostroff’s (2004) aforementioned theory linking HRM systems to organizational performance. They noted that the promotion of shared climate perceptions is determined by system strength, which is driven by distinctiveness (i.e., does it stand out), consensus (i.e., do employees agree about it), and consistency (i.e., is it steady over time and observation types). Diversity increases racioethnic salience which makes MER’s equity signal stand out. Higher diversity should also prompt employees of all racioethnic backgrounds to view the HRM system through a racioethnic lens, thereby seeking evidence indicating that their respective group enjoys comparable advancement opportunities to other groups, as signaled by MER. Finally, higher levels of diversity can make MER seem more intentional and less inadvertent, thereby promoting consistency across the HRM system. By bolstering distinctiveness, consensus, and consistency, diversity stands to enhance the impact of MER’s signaling capacity of the organization’s HRM system (Bowen & Ostroff, 2004). Therefore, we hypothesize the following conditional relationship:
Hypothesis 2: The positive indirect relationship between MER and organizational performance is moderated by the overall racioethnic diversity of the unit. That is, the relationship between MER and organizational performance is stronger in more diverse units.
Overview of Studies
We test our model using three complementary field studies and an experiment. The first study uses archival survey data involving a nationally representative set of establishments. The second replicates the first using data from a Fortune 500 retail organization with stores throughout the United States. The third study uses panel data from professional basketball to perform a constructive replication expanding the mediating mechanism and bolstering the confidence in the causal sequence of the MER–organizational performance relationship. However, although Studies 1 through 3 represent the entire theoretical model, they do not address a fundamental assumption in our theorizing: Is equity perceived? Therefore, our final study uses experimental data to show that MER does indeed influence perceptions of equity.
Study 1 Method
Sample and Procedure
The data used in this study involve establishments from the 1996–1997 National Organizations Study (NOS; Kalleberg, Knoke, & Marsden, 1997). These units are somewhat distinct from organizational-level research in that many establishments are part of larger organizations (e.g., a store in a statewide or national chain or a franchise location). Each establishment was contacted via telephone, and a human resources or general management representative was requested for the interview. In all, nearly 1,835 establishments were contacted using a stratified random sample from roughly 15 million listed in Dun and Bradstreet, resulting in a 54.6% response rate (Final N = 1,002). As noted by prior scholars utilizing this data (e.g., Herring, 2017), there is considerable missing data on some variables, particularly the demographic composition variables involving managers. This reduced the usable sample size to 149 establishments with complete data. As a check for possible non-response bias (Rogelberg & Stanton, 2007), we compared the means of establishments with complete and incomplete data on the predictor, moderator, mediator, and outcome variables. Only the mean for the predictor was different with complete data having a higher MER than incomplete data (.83 vs. .72, t(532) = 3.92, p < .01, d = .38). No other significant mean differences were detected (all t-values < 1.2 and d values < .14), suggesting that values were comparable among the two subsamples. All responses to the items described below pertained to the establishment, even if it was a part of a larger organization. There was considerable diversity in the industries captured, the most prevalent being retail (27.9%) and manufacturing (22.7%). Though such a high volume of missing data is concerning on its face, it is important to recognize that employers are not obligated to report racioethnic composition data to the public, and most do not. Accordingly, these data afford a relatively unique opportunity to test our hypotheses with a diverse set of employers, which explains why others have used it for similar purposes (Herring, 2017; Yang & Wilson, 2006).
Measures
Organizational performance
We operationalized organizational financial performance as profits in this study. Like prior researchers (e.g., Herring, 2017), we used responses to the following item to capture profit: “Compared to other organizations that do the same kind of work, how would you compare your organization’s performance over the past two years in terms of profitability . . . much worse, somewhat worse, about the same, somewhat better, or much better?” Values were coded ordinally from one (much worse) to five (much better) with higher scores indicating higher financial performance. Prior evidence (e.g., Wall, Wood, & Leach, 2004) supports the validity of this type of subjective performance measure reported by a single organizational representative.
Operational performance
We measured operational performance as productivity. Productivity is commonly computed by dividing annual sales by the number of employees. We gauged sales with responses to the item: “What was your organization’s average annual sales revenue for the past two years?” We divided this raw number by the number of employees, and natural log transformed this value like prior studies (e.g., Shaw, Park, & Kim, 2013) to reduce its skew and kurtosis to acceptable levels (.72 and 3.41 after transformation, respectively) for ordinary least squares analyses.
Management ethnic representativeness
MER is captured using the measure introduced by Lindsey et al. (2017). This measure allows for the comparison of two demographic profiles to see their overlap and ranges from 0 (no overlap) to 1 (perfect overlap). We used it to compare the racioethnicity of establishment managers with total full- and part-time personnel. Because these measures were only provided in a binary fashion (i.e., white and minority); this measure is somewhat coarser than if the information was available on each racioethnic group:
Racioethnic diversity
Like most research on racioethnic diversity, we used Blau’s index of heterogeneity
Controls
Because prior research indicates that regions, human resource dependence (i.e., a company’s inability to attract and retain talent; Fields, Goodman, & Blum, 2005), organizational size (e.g., Holzer, 1998), percent full-time, and organizational age (e.g., Richard et al., 2021) can influence diversity and performance, we control for these variables to ensure that they do not confound our findings. Region (Northeast, Midwest, South, and West) was dummy coded with South serving as the referent. Human resource dependence was captured with an item asking respondents to indicate their level of agreement with the following statement: “It is difficult to find highly skilled workers.” Percent full-time was captured as the proportion of full-time personnel and age was measured in years. Organizational size was captured as the natural logarithm of the number of employees. Given the potential correlation between the predictor and moderator, we also control for quadratic effects of each in testing the interaction (Cortina, 1993). Finally, whether the firm is a part of a larger organization was dummy coded and establishment age was natural log transformed to normalize its skew and kurtosis. We should also note that the results reported are robust to the inclusion of additional controls such as industry (8 dummy variables).
Study 1 Results and Discussion
Descriptive statistics and correlations are presented in Table 1. The hypotheses were tested using moderated multiple regression and the Monte Carlo Method in R to compute the indirect effect, the index of moderated mediation, and corresponding confidence intervals (see Table 2 for a summary; Hayes, 2022). Hypothesis 1 (H1) predicted a positive indirect relationship between MER and organizational performance through operational performance. Though the effect of MER on operational performance was in the predicted direction (b = .59, p = .55), it was not statistically significant. Therefore, H1 was not supported.
Means, Standard Deviations, and Correlations in Study 1
Note: N = 149. Regional locations and independent establishments are dummy coded. Size, age, and productivity are natural log transformed. Correlations >.16, p < .05. Correlations >.21, p < .01.
Summary of Hierarchical Moderated Multiple Regression Analyses Predicting Establishment Productivity and Profit
Note: N = 149. Regional locations and independent establishments are dummy coded. Size, age, and productivity are natural log transformed.
p < .05. **p < .01.
One possible reason for the failure to support the first hypothesis is that the indirect effect of MER on operational performance is conditional, as proposed in Hypothesis 2 (H2). Specifically, we predict that MER and racioethnic diversity interactively influences organizational performance indirectly through operational performance. At Stage 1, we see that the MER × diversity interaction exerted a statistically significant effect on operational performance (b = 11.52, p = .036). To probe this interaction (see Figure 2 for an illustration), we computed simple slopes showing that the effect of MER on operational performance was null when diversity was lower (b = −.37, p = .863) and positive when diversity was higher (b = 4.47, p = .006). At stage 2, the effect of operational performance on organizational performance was significant (b = .10, p = .015), indicating that establishments whose employees were more productive tended to be more profitable. Collectively, these findings produced a significant index of moderated mediation (1.10, 95% CI = .01 to 2.76). This, in addition to the pattern of conditional indirect effects, provides support for H2 in that MER corresponded with lower operational performance and less (albeit not significantly less) profit when racioethnic diversity was lower (−.03, 95% CI = −.49 to .41) and higher operational performance and more profit when diversity was higher (.43, 95% CI = .05 to .96).
The Interactive Effects of MER and Racioethnic Diversity on Productivity in Study 1
The findings of the first study provide preliminary support for our model. Though no unconditional indirect effect of MER on organizational performance was detected, there was a statistically significant conditional effect through operational performance. It seems the impact of MER on the organizational bottom line depends on the level of racioethnic diversity in the establishment. When there is greater diversity, MER appears to signal equal opportunity, leading personnel to work harder selling goods and services, thereby promoting greater profitability. In the absence of diversity, however, MER may be less impactful because equity concerns are not as salient in racially homogenous workplaces. Employees in these contexts may not actively assess leadership composition as a signal of fairness, because the workforce is composed of a single dominant group. Consequently, MER may not generate the same motivational effects in low-diversity settings, leading to weaker relationships with productivity and profitability.
Despite the significant moderated mediation observed in Study 1, there are several factors that limit the conclusions that can be drawn from the results. Namely, the data were all derived from a single organizational informant and could exhibit some degree of same source bias. Though this is an implausible explanation for interactions (Siemsen, Roth, & Oliveira, 2010), replicating the finding with multi-source data would be valuable. A perhaps more noteworthy shortcoming of Study 1 is that all non-white employees were collapsed into a single category. This binary representation of race is potentially problematic because the non-white representation at the managerial level may not be the same as the non-white representation across the organization. Thus, it is important to see if these findings replicate with more recent data where the specific racioethnic identity of all non-white employees is known.
Study 2 Method: Constructive Replication
Sample and Procedure
This study utilized archival data from a United States–based retail organization from 2005 to 2006. The parent organization and stores had strong racioethnic heterogeneity and have won numerous awards for exemplary diversity management. Data were collected from the company human resource information system indicating self-reported racioethnic identities for all employees and managers and information on store sales and profit. The sample consisted of 762 stores across the United States—primarily in more urban settings. The average store had 141 employees (mean age = 37; mean job tenure = 1.5 years), with an average composition of 85% female, 69% white, 15% Black, 11% Hispanic, 3% Asian, and 1% Native American. These data are part of a much larger, multiyear dataset that has been used to test other phenomena in the organizational sciences. MER was never calculated or included in any of those prior works using the data.
Measures
Organizational performance
Again, we utilize profits as a proxy for organizational performance. Like some past research (e.g., Kim, Eisenberger, Takeuchi, & Baik, 2022; Sun, Hu, & Hillman, 2016), we operationalized profit as the total profits as a percentage of sales. One benefit of this measure is that it accounts for potential differences between larger and smaller stores.
Operational performance
As in Study 1, we measured operational performance as productivity. As in prior research, “we used product sales divided by the total number of employees to account for establishment heterogeneity in terms of size” (Han, Kang, Oh, Kehoe, & Lepak, 2019: 1399). Though we transformed this variable in Study 1 to reduce its skew and kurtosis to acceptable levels, this was not necessary in Study 2. Nevertheless, running the analyses with a log transformed variable produces an identical pattern of results to those reported.
Management ethnic representativeness
As in Study 1, we used Lindsey et al.’s (2017) formula to measure MER, comparing the racioethnic profile of store-level managers with total personnel. Whereas Study 1 used binary racioethnic data (white/minority), five groups were used (white, Black, Hispanic, Asian, and Native American) in this calculation of MER.
Racioethnic diversity
As in Study 1, we used Blau’s index corrected for group size to capture diversity.
Controls
Given that a store’s location and quality could relate to composition and performance, we control for geographic region and store environment. Due to racioethnic differences in turnover that could impact workforce tacit knowledge and, therefore, performance, we also control for average worker job tenure. Like Study 1, we control for full-time percentage. Finally, we control for lagged organizational performance in all analyses to bolster confidence in our proposed causal sequence. It is worth noting that the results of our hypotheses are robust to the inclusion or exclusion of the lagged dependent variable. The reported results are robust to the inclusion of additional controls such as store size, population of the statistical metropolitan area (SMA), the number of similar types of stores nearby, per capita income of the SMA, and median household income of the SMA.
Study 2 Results and Discussion
Descriptive statistics and correlations are located in Table 3. Hypotheses were tested in the same manner as in Study 1, again using R (see Table 4 for a summary; Hayes, 2022). As in Study 1, the main effect of MER on the proposed mediator operational performance was positive, but not significant (b = 6.53, p = .116). Again, H1 was not supported.
Means, Standard Deviations, and Correlations in Study 2
Note: N = 762. Northeast, South, Central, and West are dummy coded. Correlations > .07, p < .05. Correlations > .09, p < .01.
Summary of Hierarchical Moderated Multiple Regression Analyses Predicting Establishment Sales Productivity and Profit in Study 2
Note: N = 762. South, Central, and West are dummy coded.
p < .05. **p < .01.
Turning to H2, we begin by examining Stage 1. The MER × diversity interaction again significantly predicted operational performance (b = 60.78, p = .004; see Figure 3 for an illustration). Due to the relatively high correlation between diversity and MER, we replicated the analyses, including quadratic terms for each, and the effect of the interaction was unchanged. The simple slopes indicate that there was no significant relationship between MER and operational performance when diversity was lower (b = −4.98, p = .573). However, a significant positive relationship was observed when diversity was higher (b = 20.19, p = .008). At Stage 2, there was a significant positive effect of operational performance on organizational performance (b = .02, p < .001). Collectively, this accounted for a significant index of moderated mediation (1.22, 95% CI = .35 to 2.28). Consistent with our prediction, the indirect effect of MER on organizational performance through operational performance was positive when diversity was higher (.40, 95% CI = .10 to .78) yet non-significant in less racioethnically diverse establishments (−.10, 95% CI = −.47 to .25). This finding provides support for H2.
The Interactive Effects of MER and Racioethnic Diversity on Productivity in Study 2
During data collection, store associates also responded to McKay, Avery, and Morris’s (2009) diversity climate measure. Given the conceptual similarity between it and MER, we examined their bivariate correlation. The correlation between store diversity climate and MER is negative (r = −.097, p < .001), likely reflecting the fact that MER is likely highest when no diversity is present. Moreover, adding diversity climate and its interaction with racioethnic diversity to our model did not alter our reported interaction effects. Thus, the empirical effects of MER and diversity climate appear distinct.
The results of Study 2 largely replicate those of the first study. Again, there was no unconditional indirect effect of MER on organizational performance, but we observed significant indirect interactive effects of MER and diversity through operational performance. Likewise, the conditional indirect effect of MER on organizational performance again proved non-significant under conditions of low racioethnic diversity, but positive and significant in more diverse stores.
Though our results are replicated across Study 1 and Study 2, the data are cross-sectional. Additionally, the age of our data in Studies 1 and 2 can be viewed as a limitation to the generalizability of our findings (Ketchen, Roccapriore, & Connelly, 2023). Therefore, we test our model with Study 3 using the most recent, publicly available data from the most successful U.S. professional basketball league across five seasons. We pursued replication of the previous findings using longitudinal data to further examine the causal effects of MER on productivity. Furthermore, MER and overall diversity change from season to season creates a more robust examination of our hypothesized model.
Study 3 Method
Sample and Procedure
This study uses publicly available data from the National Basketball Association (NBA) for the last six seasons where full data were available (2017-2022). Given the impact of the COVID-19 pandemic on the 2020-2021 gate revenue because of attendance restrictions, we removed it from the panel. The NBA involves highly structured competition between 30 teams, and their data has been utilized frequently to examine organizational phenomena (see Fonti, Ross, & Aversa, 2023 for a recent review). We contend that these data are particularly useful for our purposes because they are public, making demographics and performance information readily accessible. Thus, the data represent a balanced panel wherein all 30 teams are examined over the course of five seasons.
Measures
Organizational performance
Like Ertug and Castellucci (2013), we used the natural log transformed annual gate revenue (i.e., ticket sales) to measure financial performance. Forbes publishes this information each year for each team in the NBA.
Operational performance
As in most organizations, there are various viable indicators of operational performance in the NBA. We opted to use an established measure of operational performance in this context (i.e., efficiency). Like prior authors (e.g., Kilduff, Elfenbein, & Staw, 2010; Timmerman, 2005), we capture efficiency as the percentage of field goals attempted that are successful. Because the objective is to score more points than the opposing team, teams can increase their chances of winning by being more efficient or preventing their opponents from doing so through their defense. Thus, we also consider the field goal percentage of the opposing team as an indicator of defensive efficiency.
Management ethnic representativeness
As in Study 1, we used Lindsey et al.’s (2017) formula to measure MER, but with separate categories for racioethnic minorities (as in Study 2; Black, white, Hispanic, and Asian). Players were employees and coaching staff (i.e., full-time coaches and trainers; max = 12, mean = 9) were management.
Racioethnic diversity
Again, we used Blau’s index (corrected) to capture diversity.
Study 3 Results and Discussion
Descriptive statistics and correlations are located in Table 5. Because we used panel data in this study, the hypotheses were tested using panel analysis via the plm package in R (see Table 6 for a summary). Confidence intervals for the indirect effects and index of moderated mediation were computed using the Monte Carlo Method. A significant Hausman test for the full model indicated that fixed effects were appropriate. As in the first two studies, the main effect of MER was not significant in predicting offensive efficiency and was related positively to defensive efficiency (counter to our prediction). Hence, H1 was not supported.
Means, Standard Deviations, and Correlations in Study 3
Note: N = 150. Gate revenue is in millions and natural log transformed.
p < .05. **p < .01.
Summary of Panel Analyses Predicting Productivity and Performance in Study 3
Note: N = 150.
p < .01.
Examining H2, the stage 1 MER × diversity interaction significantly predicted offensive operational performance (b = 28.09, p = .002, ΔR2 = .03; see Figure 4 for an illustration), but not defensive operational performance. The simple slopes indicate that there was a negative significant relationship between MER and offensive operational performance when diversity was lower (b = −3.30, p = .005). However, a significant positive relationship was observed when diversity was higher (b = 3.80, p = .031). At Stage 2, there was a significant positive effect of offensive operational performance on financial performance (b = .05, p = .004). Collectively, this accounted for a significant index of moderated mediation (1.29, 95% CI = .28 to 2.68). As anticipated, the indirect effect of MER on performance through offensive operational performance was positive when diversity was higher (.18, 95% CI = .01 to .41), but negative than when it was lower (−.15, 95% CI = −.33 to −.03). This finding supports H2.
The Interactive Effects of MER and Racioethnic Diversity on Productivity in Study 3
The results of Study 3 largely reinforce those of the first two studies. While there was no unconditional positive indirect effect of MER on performance, we detected significant indirect interactive effects of MER and diversity through offensive operational performance. When team diversity was higher, a one-unit change in MER coincided with an additional $11.52 million in gate revenue (raw) through its impact on offensive efficiency. Conversely, when team diversity was lower, a similar change led to a loss of more than $10 million.
Though we found results that support H2, which posits that the relationship between MER and organizational performance is stronger in more diverse units, we make an inferential leap in our theoretical development. Our previous arguments were based on the assumption that employees collectively interpret MER as indicative of organizational racioethnic equity. To test this assumption, we continue our argument that MER goes beyond simply representing demographic alignment. We theorize that MER serves as a tangible and visible signal of an organization’s commitment to racioethnic equity.
Unlike traditional fairness or justice theories, which focus more heavily on equality, equity emphasizes more identity-conscious processes that acknowledge and address barriers. When employees observe management that reflects the racioethnic composition of the workforce, they interpret this as the organization taking concrete steps to ensure equal opportunity for advancement and leadership across all racioethnic groups. This alignment could promote perceptions of the organization as an equitable workplace, particularly in more diverse units where racioethnicity is more salient. This representation is crucial for shaping employees’ perceptions of organizational racioethnic equity that, in turn, may enhance collective operational performance (workforce productivity). Thus, we argue that MER is a visible indicator of racioethnic equity, with its effects being magnified in more diverse units where racioethnicity is highly salient.
Hypothesis 3: Diversity moderates the positive MER–perceived equity relationship such that it is more strongly positive when racioethnic diversity is higher versus lower.
Study 4 Method
Sample and Procedure
Three hundred twenty-three participants were recruited using an online panel and an undergraduate introduction to management course. Panel participants were recruited via the online panel platform Prolific and compensated $2 (USD), and undergraduate participants received extra credit for their participation. Approximately 90% of those who completed the study passed the two attention checks (i.e., “Select somewhat for this question” and “Select agree for this statement”), reducing the usable sample size to 291 (42% white, 16.3% Black, 15.6% Asian, 13.8% Hispanic, 1.7% selected “other”, and 11.1% multiracial. The usable sample included 195 panel participants and 96 students. We tested for differences in the hypotheses across the two groups (by adding a dummy variable indicating student status and its interactions with the manipulations) and none were statistically significant (all corresponding η2 values were ≤ .011). Fifty-eight percent of the usable sample identified as female, and participants were on average 33.1 years old (SD = 13.2) with 84.1% employed either full- or part-time. After reading and agreeing to the consent form, participants were told that researchers were interested in job search behaviors. They were then asked to view a webpage for a fictitious company and complete surveys regarding perceptions of the organization and demographics.
Manipulations
Participants were assigned randomly to one of four conditions reflecting a 2 (homogenous or diverse staff) × 2 (homogenous or diverse leadership) design. The demographic profiles were created using Bureau of Labor Statistics data (BLS, 2024) as a baseline for the homogenous conditions. ChatGPT was used to create a profile for the diverse conditions. The ChatGPT prompt asked for an allocation of racioethnic percentages assigned to management and the general workforce based on the four described conditions (OpenAI, 2024). The online supplement presents a table reflecting exact MER and diversity representations in each condition, and the ChatGPT transcript used to refine the conditions.
We dummy-coded for high and low MER. Two conditions reflected an organization with high MER (in a homogenous or a diverse workforce) and were coded as 1. The other two conditions reflected an organization with low MER (in a homogenous or a diverse workforce) and were coded 0. We also dummy-coded for high and low diversity. As in Studies 1, 2, and 3, the organization’s diversity was based on unit-level staff diversity. Our two high diversity conditions were assigned the value of 1. The two low diversity conditions were assigned the value of 0.
Measures
Equity
We measured perceived equity using To, Sherf, and Kouchaki’s (2024) measure of inequity (adapted from Hideg & Wilson, 2020). Participants rated the extent to which they agreed with three statements (sample item: “In this workplace, people should not be concerned about social limitations on racioethnic minority’s opportunities”; 1 = strongly disagree to 5 = strongly agree (α = .83). Because this measure focuses on racioethnicity in particular, we also adapted the measure to be more neutral (e.g., “In this workplace, people should not be concerned about social limitations on employee opportunities”) and collected this measure as well for a subset (roughly a third) of our overall sample (α = .78).
Study 4 Results and Discussion
Table 7 shows descriptive statistics and correlations. To check the effectiveness of the manipulation, participants were asked to indicate their level of agreement with the following statement on a 5-point Likert scale: “The top management of Limitless Consulting has the same race/ethnic ratio as their workforce.” As expected, those in the higher MER condition indicated higher levels of agreement than those in the lower condition (3.53 vs. 2.48, respectively, t(288) = 8.15, p < .001, d = .96). Thus, the manipulation appeared to be effective.
Means, Standard Deviations and Correlations for Study 4
Note: N = 292.
p < .01.
Table 8 presents results from an analysis of variance involving the MER and staff diversity predicting perceived equity. As anticipated, the MER × diversity interaction was statistically significant (F(1, 287) = 7.06, p = .008, η2 = .02). As Figure 5 illustrates, the simple slopes analyses show MER significantly predicted perceived equity when diversity was higher (b = .30, p = .045), but not when it was lower (b = −.26, p = .081). We also observed this interactive pattern within government service field data predicting perceived racioethnic discrimination (the antithesis of racioethnic equity) within 41 establishments (see online Supplemental Study 1 for further description).
Summary of Analysis of Variance Predicting Perceived Equity in Study 4
Note: N = 292.
p < .01.
The Interactive Effect of MER and Diversity Predicting Perceived Equity in Study 4
As a supplemental analysis, we also examined whether the operationalization of equity as racioethnic or more general influenced the results reported. We did so in two ways. First, for those who completed both measures, we conducted a repeated measures ANOVA treating measurement type (racioethnic vs. blind) as a within-subjects variable and examined the main and interactive effects of the MER and diversity variables. None of the within-subject effects were significant, but the between-subjects MER × diversity interaction was statistically significant (F(1, 92) = 6.20, p = .015, η2 = .06), indicating that the interaction significantly predicted the average level of the two measures and this interactive effect did not vary by measurement type. Second, we replaced the racioethnic version of the measure with the blind version for the subset where it was available and repeated our main analysis (a regular ANOVA) but also included a dummy indicating those in the blind variable subset. The MER × diversity interaction remained significant whereas the MER × diversity × blind measure interaction was not. This demonstrates further evidence that the two-way interaction appears invariant across the two types of measures.
In finding support for Hypothesis 3, we have established that perceived equity (racioethnic and general) is shaped by MER and diversity. In an additional study contained in the online supplement (Supplemental Study 2), we experimentally manipulated equity and found that it positively predicted some measures of collective productivity (operational performance). Taken together, this suggests that perceived equity mediates the interactive effects of MER and diversity on operational performance. Though we attempted best practices in the use of our panel data (Porter, Outlaw, Gale, & Cho, 2019), the presence of artificial responses is a significant concern in online panel platforms. At the time of data collection, validity checks were not included by Prolific; as such this may be a limitation of Study 4.
General Discussion
This paper deepens our understanding of the relationship between organizational racioethnic equity and organizational functioning. We use signaling theory to suggest that MER serves as a signal to stakeholders that communicates the organization’s racioethnic equity. We rely on equity theory to further explicate the sensemaking process signal receivers go through to interpret this signal. When MER is higher, employees may become more motivated and productive (operational performance), thereby resulting in higher organizational performance. Additionally, we contend that this equity signal is stronger in more diverse organizations because racioethnicity is more salient in those contexts.
Our results in all studies show no evidence of an unconditional positive effect of MER but consistent evidence of indirect effects contingent on the organization’s level of racioethnic diversity. Study 1 provided external validity, as it involved data from a diverse sample of organizations within the United States. Though Study 2 sampled a single organization, it provided a constructive replication with a more diverse racioethnic profile and more comprehensive racioethnic data. Study 3 replicated our indirect interactive effects using more recent longitudinal data from the NBA. Finally, Study 4 clarifies the first stage of our model, showing that MER and diversity interact to enhance perceived equity (a finding further reinforced by our Supplemental Study 1). It also demonstrates that higher perceived equity fosters collective work effort, improving operational performance (as shown in the online Supplemental Study 2). We now focus on the implications of our findings for theory and practice.
Theoretical Implications
The present study makes several important theoretical contributions to the management literature. First, by centering organizational racioethnic equity as our focal variable, we contribute to broader DEI literature by differentiating equity from diversity and inclusion. Beyond their definitional distinctions, we also empirically distinguish equity (operationalized using MER) and inclusion (operationalized as diversity climate) in our supplemental analyses of Study 2. Additionally, we acknowledge that many may mistakenly equate equity with equality and justice. However, we emphasize that equity explicitly acknowledges the inequalities and barriers that may disproportionally impact some identity groups (e.g., racioethnic minorities), whereas equality and justice are conceptually more identity blind (Ruggs & Holmes, 2024). Our results from Supplemental Study 1 also support this distinction by replicating the MER × diversity interaction on perceived discrimination (inequity) even when controlling for justice climate and its interaction with racioethnic diversity. To our knowledge, extant DEI literature focuses primarily on the organizational impact of diversity and inclusion. Conversely, we provide insight into the influence of racioethnic representativeness in diverse organizations on firm-level performance outcomes through perceived equity.
Second, we demonstrate the interactive nature of diversity and equity by showing the nuanced relationship between MER and organizational outcomes in different organizational contexts. We theorize that stakeholders may interpret MER differently if the organization is lower or higher in diversity. Specifically, we argue that racioethnicity is more salient in diverse organizations. As such, diversity strengthens MER’s signal that racioethnic equity characterizes an organization’s HRM system (Bowen & Ostroff, 2004). In fact, we find consistent support for the interaction of MER and diversity across all four studies. However, our results from Study 4 suggest that the interpretation of MER may be more complex (and less consistent) in less diverse organizations. Perhaps the comprehensive exclusion that MER represents in homogeneous settings is the antithesis of structural integration (Cox, 1993). In such organizations, MER may not signal equity as strongly because at its apex there is no racioethnic diversity to be found within the organization. These findings suggest MER may send different signals depending on the level of organizational diversity present, demonstrating the interrelated nature of these concepts.
Third, we conceptualized MER as a signal of organizational racioethnic equity. Organizational equity is an unobservable quality that stakeholders may rely on visual cues to infer. Because people can mentally process and form perceptions of group-level characteristics using visual information alone (Phillips et al., 2018), we argue that stakeholders can deduce an organization’s equity levels using MER. Our results from Study 4 support this theorizing. Specifically, we find that individuals perceived organizations to be more equitable when they are high in both MER and diversity. By conceptualizing MER as a form of organizational equity, we extend its conceptualization beyond the initial findings of Lindsey et al. (2017) that suggested that it influences individual sensemaking in workplace mistreatment.
Finally, by integrating signaling and equity theories, we provide a theoretical basis for how organizational racioethnic equity impacts organizational functioning. Signaling theory offers a robust framework for studying how parties behave when faced with information asymmetry (Connelly et al., 2011, 2025). We complement this framework by integrating equity theory to explain the collective workforce’s sensemaking processes when determining fairness in organizational treatment, such as equitable HR practices. In doing so, we suggest that signals of equitable organizational practices can influence perceptions of the organization, thereby helping promote higher performance. Our findings suggest that MER influences perceptions of organizational equity that motivate employees to be more productive, ultimately impacting organizational performance in highly diverse firms. Existing research has studied the potential importance of diversity and inclusion on organizational functioning; however, the current study shows that equity plays a distinct and foundational role. In this vein, our research shows that employees who perceive higher equity tend to deliver superior results.
Practical Implications
The findings of this research have significant implications for organizations aiming to enhance performance through equitable workforce management. First, the business case for racioethnic equity is clear. Our results indicate that in organizations with greater workforce diversity, MER is positively associated with operational performance, which subsequently enhances organizational performance. For perspective, in Study 2, the significant conditional indirect effect, the .40 value, corresponds to $8 million more in profit (based on average store sales) for a diverse store with a MER of one compared to a store with a value of zero. This underscores the tangible financial benefits of ensuring that leadership representation reflects workforce composition via HR practices and return on investment, valuable to both organizations and stakeholders. Beyond ethical and legal considerations, organizations stand to gain significant competitive advantages by fostering equity in leadership representation.
Additionally, discretionary human resources practices can maximize human capital and influence company culture. Organizations should avoid focusing solely on diversity-focused hiring practices, as doing so may limit the workforce composition across all levels, including management, and underutilize existing human capital. Whereas personnel mobility reinvests in the current workforce, employee advancement can influence and be influenced by organizational culture and/or climate. In our case, higher MER signals equitable HR practices that could aid in promoting cultural values like trust, support, and collaboration (Cameron & Freeman, 1991). Continuously equitable HR practices can positively influence culture, potentially creating a symbiotic relationship. As Hon and Leung (2011) demonstrated, culture can influence employee behaviors as well. In sum, supportive cultures may enable stronger MER, and vice versa, likely contributing to better organizational performance.
Finally, MER may have similar influences on multiple echelons within the workforce. For example, Richard et al. (2021) reported similar results at higher echelons of leadership, namely between executives and lower-level managers, though their study focused on diversity matching. Our findings, combined with those of Richard et al. (2021), suggest that a degree of compositional “matching” from front-line employees through to the executive level is positively related to greater organizational productivity and fiscal outcomes. These findings further illustrate that equitable HR practices are good for all.
Limitations and Future Research
Although our research has several methodological strengths, namely external validity in Study 1 and the compositional measurements of our sample in Study 2, our theorizing may be limited in generalizability. First, we rely on a single signal for organizational racioethnic equity. Signaling theory research has found that multiple signals can strengthen or weaken perceptions depending on their consistency and clarity (Connelly et al., 2025). Specifically, there may be a difference if multiple signals communicate consistent or inconsistent information about the organization’s equity. Additionally, it is worth noting that factors external to the organization such as community diversity may influence the impact of internal organizational signals like MER. Future research should explore additional signals of organizational equity and their joint influence on employee perceptions, productivity, and financial performance.
Second, as Connelly et al. (2025) delineate in a critique of the literature, an important yet often forgotten component of signaling theory is signal cost or “the resources a signaler expends to send a signal,” which can impact receiver perceptions (p. 25). Despite its relevance, we did not incorporate signal cost into our initial theorizing because cost is related to the intentional or unintentional nature of the signal. What does it cost to send this signal? This is implying that the signal is deliberately sent. We recognize that achieving high MER likely requires organization resources, but the cost of MER is lower for more genuinely equitable organizations because they likely have systems in place to redress racioethnic barriers. Additionally, this may vary across other organizational contexts such as organization diversity. Relatedly, future research should investigate how the same signal may operate differently when sent intentionally or unintentionally. Though they do not provide explicit definitions, Connelly et al. (2011, 2025) distinguish intentional (deliberate communication) from unintentional (unconsciously conveying information) signals. As such, MER could function as either depending on how the information in conveyed. For instance, in Studies 1 through 3 employees are exposed to and can observe MER daily through their everyday workplace experiences as more of an ambient, unintentional signal. In contrast, in Study 4 the organization is explicitly advertising this information to a group of external evaluators making MER an intentional signal. Future research could examine the differential costs of deliberate equity signals in lieu of, or in addition to, unintentional signals, as the latter may be more honest indicators that “the signaler actually has the unobservable quality being signaled” (Connelly et al., 2011: 52).
Third, this paper focused solely on racioethnic equity and diversity in organizations. Although this research is important and contributes to DEI scholarship, it does not encompass all differences within the workforce. Future research should broaden the scope to include other demographics, such as sex, sexual orientation, religion, and disability status. Because racioethnicity and sex are “among the most psychologically potent” and salient demographic markers of differences (Chatman, 2010: 448), investigating management sex representativeness could provide additional insight into social interactions, productivity, and organizational performance. Additionally, exploring intersecting identities in organizational equity could reveal how specific identities become salient in certain environments and their subsequent impact on perceived equity.
Though we identify a mechanism through which MER impacts organizational performance, future research may examine other mediating mechanisms. The mediator identified in the current research, operational performance, aligned with our theorizing that perceived equity is motivating to employees and therefore helps enhance their productivity. However, the effects of MER also might be driven by management/leadership quality as greater equity could result in “better” people being promoted to or selected for management roles. That said, we conducted a preliminary examination of this hypothesis with the NBA data used in Study 3. Building on the work of Avery et al. (2012), we frame this alternative to the symbolic (signal-based) impact that we propose as a functional effect of MER. Although there is no readily available proxy to estimate the quality of an entire leadership team, head coaches have collective records that are used by decision-makers to evaluate their performance, thereby impacting compensation and retention decisions (e.g., Cannella & Rowe, 1995; Holcomb, Holmes, & Connelly, 2009). Accordingly, we examined whether the career win percentage of the head coach prior to that season mediated the effects of MER and diversity on organizational performance. At Stage 1, the MER × diversity interaction did not significantly predict this proxy (b = .25, p = .744) and the only significant main effect was a negative one for MER (b = −.24, p = .003). Given the positive effect of the proxy on organizational performance (b = .45, p = .018), the corresponding indirect effect is actually in the opposite direction than we predicted for the unconditional and conditional effects of MER. Thus, this preliminary test does not support the alternative explanation that manager quality accounts for the interactive effects of MER and diversity that we observed across our studies.
Finally, future research should test the cross-level relationships underlying the collective sensemaking assumption made in our theorizing. While our research demonstrates the relationship between MER and organizational outcomes, we acknowledge that our theorizing relies on the assumption that individual perceptions aggregate to the collective level (Stigliani & Ravasi, 2012; Weick et al., 2005). Though this assumption is grounded in existing research on collective sensemaking, we believe this is an opportunity for future research to examine the precise mechanisms that may enable this cross-level relationship. Scholars could measure organizational climate to assess how collective signal interpretation of MER leads to shared cognition (Bowen & Ostroff, 2004), and how these shared perceptions (and perhaps their strength) impact productivity and performance at both the individual and collective levels.
Conclusion
Our research builds on Lindsey et al.’s (2017) MER construct. Using signaling theory and equity theory as a framework, we found that operational performance consistently mediated a positive relationship between MER and organizational performance in more racioethnically diverse units. More specifically, MER can help increase organizational performance (i.e., profits) by enhancing perceptions of racioethnic equity, thereby improving the operational performance (i.e., productivity) of the collective workforce when unit diversity is higher. This research informs DEI scholarship by highlighting the importance of equity to the organizational bottom line.
Supplemental Material
sj-docx-1-jom-10.1177_01492063261446904 – Supplemental material for How Racioethnic Equity Contributes To Organizational Functioning
Supplemental material, sj-docx-1-jom-10.1177_01492063261446904 for How Racioethnic Equity Contributes To Organizational Functioning by Larissa R. Garcia, Kristi B. Hatter, Derek R. Avery and Patrick F. McKay in Journal of Management
Footnotes
References
Supplementary Material
Please find the following supplemental material available below.
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