DEI is dying. MEI is the new corporate rage. Standing for “merit, excellence, and intelligence”— in contrast to “diversity, equity, and inclusion”— MEI involves hiring solely on merit, without consideration of demographic factors. Labor economists have preached the gospel of meritocracy for decades. It’s refreshing to see it become fashionable.

Companies that broaden their talent searches and eliminate biases in hiring can make efficient employment decisions. As Glenn Loury and I once demonstrated mathematically, meritocratic policies maximize productivity and insure against bias. When the right people are placed in the right jobs, and people with talent are appropriately rewarded for developing their skills, the economy runs more efficiently.

In 2020, I co-founded Sigma Squared to help businesses supercharge meritocracy. The idea is simple: Any company that is maximizing talent, by definition, has no bias. If there is bias, then moving toward meritocracy will rid the company of that bias and increase productivity at the same time.

In our work with corporations across America, we’ve seen relatively small disparities in hiring and compensation for women or minorities. Black and female employees make about 5% less than whites and men after accounting for basic differences such as their education, experience, job level and performance. These disparities are primarily the result of lower starting salaries, which tend to persist over time because they form the foundation of future pay raises. When we run the data through a series of more than 200 statistical tests, the results demonstrate that these disparities aren’t driven by bias.

Racial disparities in promotions are more severe, with black and Asian employees facing about a 20% penalty on average even after accounting for the same potential differences across workers. The penalty seems largely driven by employers not giving black or Asian employees the same credit they give whites for high performance and tenure—a clear form of statistical bias. This is costly both for the workers who lose the chance at better jobs, and for companies that fail to promote the right candidates into the right roles. Nicholas Bloom and

John Van Reenen showed that differences in management quality can lead to company performance differences of 20% to 30%. If one key managerial role contributes a modest share of that overall effect, its underperformance could likely cost the firm 1% to 3% of annual revenue.

I’ve worked with household-name brands to measure meritocracy in their talent processes. Laissez-faire doesn’t get it done. Corporations have to make it happen.

The average company has 18 areas in which changes to its hiring, compensation, performance-evaluation or promotion processes would yield significantly more meritocracy and diversity, as well as significantly better business outcomes. But 25% of the time, CEOs don’t want to take these steps. Instead they revert to box-checking exercises, like gathering employees to talk about their feelings or mandating useless training. The other 75% of the time, we provide them tools for making data-driven talent decisions. Artificial intelligence and machine learning can estimate applicants’ likely performance or attrition before they are ever hired. These modern methods can identify future leaders, optimize shifts and schedules, and help companies estimate, using their own data, what type of applicants thrive in their specific company culture. We call this the “success phenotype.”

Some say that diversity in and of itself is good for business. Consulting firms and activists have advised that adding women and minorities to a company, especially its board, will magically cause profits to grow. Credible research has always shown this was wishful thinking.

Frequently cited McKinsey studies have found a strong link between firms’ earnings and the racial and ethnic diversity of their executives. The consulting firm doesn’t make its data public, but in 2024 business researchers Jeremiah Green and John R.M. Hand were unable to replicate the results with data from S& P 500 companies. In 2020, Robin J. Ely and David A. Thomas further debunked the “add diversity and stir” approach in Harvard Business Review: “We know of no evidence to suggest that replacing, say, two or three white male directors with people from underrepresented groups is likely to enhance the profits of a Fortune 500 company.”

The available research focuses overwhelmingly on correlations between diversity and performance, rather than causation. Another Harvard Business Review article notes a link between businesses’ DEI rankings and various measures of their dynamism and culture, which in turn are linked to performance. But the authors concede that causation is “difficult to prove.” If the most successful businesses also face the most pressure to improve DEI metrics, it’s plausible that increased profits may cause diversity efforts, not the other way around.

Emphasizing meritocracy offers an opportunity to bring rigor, transparency, and cutting-edge data analytics to all talent decisions, unlocking the untapped potential of the vast data companies already collect. Companies embracing meritocracy will have to take seriously the need to find hidden talent and eliminate bias from their hiring processes.

A company isn’t at its talent frontier if it’s passing over qualified candidates—no matter the reason. You don’t need a business degree to see that solving this problem will drive profits and give meritocracy focused companies a competitive edge over those stuck staring at statistical snapshots or clinging to outdated, box-checking DEI practices. Companies are right to step back from those outdated approaches. Every American corporation must do the hard work of putting the right people in the right jobs, without letting bias get in the way. A serious commitment to MEI is a step in that direction.