Merit-based reward practices can unintentionally lead to pay disparities based on gender, race, and national origin. Here’s how companies can use data, transparency, and accountability to prevent that.

For their companies to remain competitive and successful, many executives strongly believe that they need to recruit and retain top talent. And to do so, they must foster meritocracies — hiring, rewarding, and promoting the best people, based on their merit. As a result, the most progressive companies have created formal systems for ensuring that job applicants and employees are judged solely by their efforts, skills, abilities, and performance, regardless of gender, race, class, national origin, or sexual orientation. Executives might, for example, take great efforts to show their commitment to meritocracy by implementing performance reward systems that separate performance reviews from pay and reward decisions. But have such approaches helped workplaces become true meritocracies?

In research studying workplace inequality and merit-based pay, I have found that such approaches are no protection against demographic bias. (See “About the Research,”) When managers believe their company is a meritocracy because formal evaluative and distributive mechanisms are in place, they are in fact more likely to exhibit the very biases that those systems seek to prevent. Achieving meritocracy in the workplace can be more difficult than it first appears, and there may even be unrecognized risks behind certain efforts to discourage bias. According to my findings, the very belief that an organization is meritocratic may open the door to biased, nonmerit-based behavior when managers make key individual-level career decisions. In other words, certain gender, racial, and other demographic disparities might persist in today’s organizations not only despite management’s attempts to reduce them but also because of such efforts.

The good news is that establishing a more meritocratic workplace doesn’t require an inordinate amount of time or resources. It is a matter of establishing clear processes and criteria for the hiring and evaluation of employees (or, in fact, any employee career decision). It is also a matter of monitoring and evaluating the outcomes of such company processes, and of bestowing an individual or group within the organization with the responsibility, ability, and authority to ensure that those formal processes are fair. The collection and analysis of data on people-related processes and outcomes — what is referred to as “people analytics” — are key here, enabling companies to identify and correct workplace biases.

References

1. E.J. Castilla and S. Benard, “The Paradox of Meritocracy in Organizations,” Administrative Science Quarterly 55, no. 4 (December 2010): 543-576.

2. This result is consistent with previous research. See, for example, R.E. Petty and D.T. Wegener, “Flexible Correction Processes in Social Judgment: Correcting for Context-Induced Contrast,” Journal of Experimental Social Psychology 29, no. 2 (March 1993): 137-165.

3. See, for example, B. Monin and D.T. Miller, “Moral Credentials and the Expression of Prejudice,” Journal of Personality and Social Psychology 81, no. 1 (July 2001): 33-43; and E.L. Uhlmann and G.L. Cohen, “‘I Think It, Therefore It’s True’: Effects of Self-Perceived Objectivity on Hiring Discrimination,” Organizational Behavior and Human Decision Processes 104, no. 2 (November 2007): 207-223.

4. E.J. Castilla, “Gender, Race, and Meritocracy in Organizational Careers,” American Journal of Sociology 113, no. 6 (May 2008): 1479-1526.

5. Ibid.

6. E.J. Castilla, “Accounting for the Gap: A Firm Study Manipulating Organizational Accountability and Transparency in Pay Decisions,” Organization Science 26, no. 2 (March-April 2015): 311-333.

7. See A. Kalev, F. Dobbin, and E. Kelly, “Best Practices or Best Guesses? Assessing the Efficacy of Corporate Affirmative Action and Diversity Policies,” American Sociological Review 71, no. 4 (August 2006): 589-617. The authors show that employer policies designed to establish managerial responsibility for employee diversity are the most successful policies for increasing the representation of women and minorities in the management ranks of companies (compared to diversity policies targeting managerial bias or social isolation of disadvantaged groups). Along similar lines, field studies have suggested that practices with greater organizational transparency and accountability are associated with more equitable workplace outcomes for employees, irrespective of gender and race. See, for example, T. Petersen and I. Saporta, “The Opportunity Structure for Discrimination,” American Journal of Sociology 109, no. 4 (January 2004): 852-901; and Castilla, “Gender, Race, and Meritocracy.” These field study findings are consistent with considerable experimental work on accountability at the individual level that indicates that gender and racial biases are less likely when decision makers believe they will be held accountable for making fair decisions. See P.E. Tetlock, “Accountability and the Perseverance of First Impressions,” Social Psychology Quarterly 46, no. 4 (December 1983): 285-292; P.E. Tetlock, “Accountability and Complexity of Thought,” Journal of Personality and Social Psychology 45, no. 1 (July 1983): 74-83; and J.S. Lerner and P.E. Tetlock, “Accounting for the Effects of Accountability,” Psychological Bulletin 125, no. 2 (March 1999): 255-275.

8. In the workplace inequality and organizations literature, scholars have also suggested that transparency in decision-making criteria and processes behind the compensation and promotion of employees can help address gender and racial biases in the workplace. See L. Bailyn, “Putting Gender on the Table,” chap. 8 in “Becoming MIT: Moments of Decision,” ed. D. Kaiser (Cambridge, Massachusetts: MIT Press, 2012); W.T. Bielby and J.N. Baron, “Men and Women at Work: Sex Segregation and Statistical Discrimination,” American Journal of Sociology 91, no. 4 (January 1986): 759-799; and S.R. Bird, “Unsettling Universities’ Incongruous, Gendered Bureaucratic Structures: A Case-Study Approach,” Gender, Work & Organization 18, no. 2 (March 2011): 202-230. As described earlier, I proposed (without empirically testing) that organizational pay transparency, as a key complementary mechanism to organizational accountability, may address the observed gender and racial gaps in pay at one company. I argued that pay transparency can make disparities more noticeable and therefore easier for management to correct. Consistent with this transparency argument are my findings that the most visible employee career outcomes — such as being promoted — are less subject to the gender and race disparities; see Castilla, “Gender, Race and Meritocracy.” This finding is in agreement with other field studies; see, for example, Petersen and Saporta, “The Opportunity Structure for Discrimination.” Similar to the conclusions of prior field studies, many scholars have advocated for pay transparency as a preventive measure to address gender and racial inequality in the workplace. For example, law professor Gowri Ramachandran reviewed empirical studies and discovered that those in settings with higher levels of pay transparency (such as state government and unionized workplaces) find lower wage disparities on the basis of gender and race than studies in nonunionized private companies. See G. Ramachandran, “Pay Transparency,” Penn State Law Review 116, no. 4 (spring 2012): 1043-1080; see also M.M. Elvira and I. Saporta, “How Does Collective Bargaining Affect the Gender Pay Gap?,” Work and Occupations 28, no. 4 (November 2001): 469-490.

9. To learn more about these statistical techniques using longitudinal data, see, for example, E.J. Castilla, “Dynamic Analysis in the Social Sciences” (San Diego, California: Elsevier/Academic Press, 2007).

10. T.A. Kochan, H.C. Katz, and R.B. McKersie, “The Transformation of American Industrial Relations” (New York: Basic Books, 1986); see also P. Cappelli, “The New Deal at Work” (Boston: Harvard Business Review Press, 1999).

1 Comment On: Achieving Meritocracy in the Workplace

  • David Dunworth | June 15, 2016

    Meritocracy makes pure sense in a capitalist society. If wages, benefits and bonuses or incentives were “standardised” there would be no motivation to excel (from a monetary perspective that is). When it becomes distorted is when the human factor oversteps, whether inadvertently or purposeful, inequality, favoritism, downright discrimination and other negative manipulative factors destroys good intentions.

    What you have left are unions, who ensure “equality” and government intervention.

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