Why Is John's Merit Increase Bigger Than Jane's?

Equal Pay Day is only a couple of weeks away. The discussion surrounding the gender pay gap is starting to pick up, and two researchers think they have a new explanation for the persistence of gender-related pay disparities: merit increases in pay-for-performance systems.

Research by Stephen Benard and Emilio J. Castilla suggests that in pay-for-performance systems, managers are less likely to award pay fairly and are more likely to act on their biases.

This isn't exactly a new idea; there's quite a bit of research suggesting that in pay-for-performance systems, women receive smaller merit increases than their male counterparts. The novel thing about the Benard/Castilla study is that it was a controlled experiment.

In the past, empirical studies of gender and pay-for-performance systems were conducted after the programs were in place, with no prior period for comparison. Benard and Castilla designed a study in which 400+ MBA students with substantial career experience were asked to allocate $1,000 in bonuses among a group of employees. The allocation was based on performance reviews completed by another manager.

One group of participant "managers" were told that the hypothetical company emphasized pay-for-performance, while the other group was told that the company simply conducts evaluations on a regular basis.

Interestingly, the participant "managers" operating under a pay-for-performance system favored male employees, giving them an average of $46 more than comparably performing female employees. According to Benard and Castilla, both male and female "managers" demonstrated this bias. The participant "managers" in the other group treated male and female employees virtually the same in terms of bonus amounts.

Here's what Benard and Castilla had to say about the results:

We suspect that an organization’s championing of meritocracy serves to reassure managers tasked with decisions about pay, making them less likely to view their behavior as biased and leading them to believe that, in any case, there’s little risk that their actions will be seen as prejudiced. They may consequently relax their vigilance and allow their biases greater sway.

Those biases may not always be conscious biases. Benard and Castilla point out that stereotypes often shape behavior, even among people who consciously disagree with the stereotype. This is supported be fact that both male and female managers making pay-for-performance decisions in the experiment gave smaller merit increases to female employees.

Does this research mean that you should abandon your pay-for-performance system? Absolutely not. Gender biases can be minimized through transparency and accountability. Make sure that there is a clearly defined (and clearly articulated) set of legitimate, non-discriminatory factors used to determine merit increases and bonus payments. Employees should understand what is expected of them to achieve a merit increase or bonus payment. Managers should understand how to apply these factors objectively.

Setting pay expectations based on a clearly defined set of factors eliminates some of the subjectivity when making merit increase decisions. This, in turn, can minimize the impact of any conscious or subconscious biases of managers.

In terms of understanding the gender pay gap, I think we can add this to the list of the variety of causes. It's not the only answer, but it's probably part of the explanation.

 Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics and is the host of The Proactive Employer. Follow her on Twitter at proactivemployr. 

Comments

[generic pharmacy]

"managers" operating under a pay-for-performance system favored male employees, giving them an average of $46

women would definitely not like it.

[E. James (Jim) Brennan]

The 11% discount for women as of 2010 is at least some improvement over the 14.2% gap found amoung ACA members after all organizational factors and personal capital elements had been equalized in 1981. That closure rate should produce gender-neutral pay by around 2114. Nice to see progress.