Meritocratic pay systems, in which superior performers are supposed to receive higher raises and bonuses than mediocre workers, are standard in well-managed companies. Differentiated pay is thought to increase workers’ effort and boost retention of top employees.
But such pay-for-performance systems may have an unrecognized downside. Research I codirected suggests that, paradoxically, managers in explicit meritocracies may be less likely than others to award pay fairly and more apt to act on their biases instead. One result: They consistently give women smaller amounts. The phenomenon may help account for the persistence of gender-associated pay disparities—and race-associated disparities, for that matter.
The idea that gender- and race-based pay disparities are not only resistant to merit systems but might actually be exacerbated by them has been around for a while. But testing the hypothesis has been problematic: Most empirical studies of the effects of pay-for-performance systems have been conducted after the programs were in place, with no prior period for comparison.
To better understand these disparities, my collaborator, Emilio J. Castilla of MIT’s Sloan School, and I designed a controlled experiment involving people whose attitudes and behaviors track those of managers in the real world. We chose as our participants more than 400 MBA students with substantial career experience: Their mean age was nearly 30, and they had an average of almost six years of work behind them, including more than two years as managers. We asked them to imagine that they were managers in a service company and needed to allocate $1,000 in bonuses among several employees on the basis of performance reviews turned in by another manager. This reflects the practice in many companies: One manager evaluates performance and another determines the financial consequences.The Bonus Contradiction
When participants in an experiment were told that their company emphasized merit, they gave bigger bonuses to men.
We found that participants who were told that their organization emphasized merit tended to favor men, giving them $46 more, on average, than they gave to comparably performing women. The bias was exhibited by male and female managers alike. Participants who thought that the emphasis was simply on conducting evaluations regularly—say, every year—treated men and women virtually the same.
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 need not be consciously held: A large body of research shows that widespread stereotypes—for example, the notion that women are less productive than men—often shape behavior unconsciously, even in people who disagree with them.
That doesn’t mean companies should give up meritocratic values, which are a touchstone for progressive leadership. Instead, they should take steps to counter the meritocracy paradox by increasing the accountability and transparency of the process by which raises and bonuses are awarded and limiting managers’ discretion regarding the pay of their direct reports.
we’re innately prejudiced and without explicit anti-discrimination measures inequality is bound to arise…