There are many jobs – particularly in finance or sales related positions that are compensated based on commission – which appear on the outset to have objective measurements regarding success. Did someone make money or did someone not make money? In some cases, women appear to underperform compared to men – this has been chalked up to women choosing less demanding accounts, choosing to work fewer hours, or just not being as assertive or risky.
In these cases, cries for more pay equality are met with a response that performance measurement is based on a meritocratic system. If anyone was compensated less than average, the line of thinking goes, it’s because they didn’t work as hard.
But a new study by a Wharton researcher shows that there are organizational biases at play when it comes to so-called meritocratic, commission based jobs. It points to the reasons that, while formalized pay structures can help decrease inequity, management plays a key role in who makes what. Therefore, line-managers must be a part of discussions around diversity and equity in companies – even those where pay is based on commission.
Pay and Performance
A class action lawsuit in the late 1990s claimed two national brokerages in the US were underpaying women stockbrokers. Both settled. The study, Performance-Support Bias and the Gender Pay Gap among Stockbrokers, by the University of Pennsylvania’s Janice F. Madden, examines how institutional bias can exist in a performance system that is commission-based.
The two firms argued that women made less money because they performed worse than their male peers – due to family pressures, wanting to leave work early, simply not being as good, etc. Madden suspected that perhaps women given less lucrative accounts than men and this could be the cause of the compensation disparity.
She was right.
She studied accounts that were transferred, based solely on management discretion, between stockbrokers. She found that lower-performing accounts were systematically transferred to female stockbrokers. “I find that women in these two firms received inferior account assignments than men (that is, accounts with lower historic commissions and/or asset values),” she writes.
But she goes further. She also found that women performed equal to men on accounts of equivalent value.
Madden says the results show that commission-based compensation can indeed be decreased by organizational bias. She writes:
“As discussed above, that leaves two other mechanisms that could have generated the gender pay and sales gap: (1) achievement or productivity differences arising from discrimination by customers; and (2) performance-support bias such that organization provides different sales opportunities, in terms of inputs and accounts, to women brokers.”
The brokerages had countered that possibly the gap was the cause of biased customers – not managerial bias. But Madden when ran the numbers, she found that this scenario was unlikely. She continues:
“The evidence clearly points to organizational performance-support bias, as the mechanism generating the gender pay gap among stockbrokers. While discrimination by consumers cannot be dismissed as contributing to the gap, the evidence is consistent with women’s lower compensation and sales performance being the result of performance-support bias, the employer assigning women inferior sales opportunities.”
The research explains how even in situations which appear meritocratic, bias can seep in. “As others have found, however, the effects of formalized policies depend on the context, or the other characteristics, of the organization. The informal or subjective ways that other decisions are made within the organization may mediate the effects of even highly formalized pay policies,” writes Madden.
This is why it’s so important that managers are trained to recognize bias – even in structures that seem to be bias-proof. Formalized structures for compensation are important for ending pay inequity. But they can’t do the job alone. It will require a keen understanding and buy-in by line management that members of non-dominant groups in organizations (like women, ethnic minorities, LGBT individuals) may be fighting obstacles that are invisible to the majority.