Women managers foster pay equity between the genders but only for low-ranking employees, new research finds
January 19, 2017
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A nuanced approach for organizations striving for gender pay equity
Two approaches to what may be the most stubborn and contentious of workplace issues – the gender wage gap – emerge with special sharpness in a study in the February issue of the Academy of Management Journal
One approach consists of pay formalization, which seeks to minimize personal biases by mandating use of detailed written rules to determine compensation. The second strategy looks to the increasing number of female managers in the workforce – and the power they wield to set pay – as a means of achieving pay equity between the genders.
Whereas most research on gender-related wage gaps relies on aggregate-level data at the industry or company level, the new study, by Mabel Abraham of the Columbia University Business School, is based on actual manager-subordinate reporting relationships in 120 branches of a large U.S. bank. Thus its special clarity in assessing the link between pay and gender in these relationships.
In addition, both formalized and less formalized approaches to pay equity come into play in each locale, with employee annual bonuses being awarded on a highly formalized basis but branch managers, almost half of them women, having considerable leeway in determining employees' base salaries. Thus a rare opportunity to compare the efficacy of formalized and less formalized approaches in achieving pay equity between men and women workers – specifically how this is affected by manager gender.
Unsurprisingly, the paper finds little or no gender gap in the formalized segment of pay – that is, in the amount of annual bonuses, standards for which are spelled out in detail by the company. In contrast, there was significant gender inequality in the less formalized component of pay, base salaries, which constituted the lion’s share of compensation, with greater imbalance occurring on average under male managers than under women.
Yet, in the words of the study, "Concluding that female managers redress inequality is incomplete because once organizational level is taken into account it becomes evident that female managers only reduce inequality for employees at the lowest-level organizational position of teller."
Thus, controlling for a host of relevant factors, female tellers in branches headed by women had base salaries that were about the same as those of male tellers; yet, female tellers in branches headed by men had base salaries about seven and a half percent less than male tellers.
In sharp contrast, women's wages for all other positions ranged from 4% to 13% less than those of men holding the same job, regardless of whether the branch was headed by a man or a woman. For example, controlling for relevant factors, female relationship managers, who focus on high net-worth customers and complex products and services, averaged about 13% less in base salary than their male counterparts under male and female branch managers alike.
The findings emerge from an analysis of personnel records and other company data over a 41-month period in 120 retail branches. All told, the analysis comprised 897 full-time personnel plus 156 branch managers, with 67% of the former and 46% of the latter being women. Employees occupied five positions, ranging from tellers, who earned the least salary and had the most limited responsibilities, to relationship managers. Among factors controlled for in analysis of personnel compensation were employee performance ratings, weekly hours, and employee age, tenure, race, and marital status. Also taken into account were branch-manager age and tenure, branches’ size and amount of deposits, and percentage of female employees per branch.
What accounts for the fact that women branch managers eliminated the gender pay gap for female tellers but not for higher-status female employees? Does this represent, Prof. Abraham is asked, a confirmation of the "queen bee" effect conjured by some previous research, which contends that women who have been successful in male-dominated contexts try to keep other women from getting ahead?
Prof. Abraham declines to offer an explanation for the finding, observing that the conditions governing the research did not permit interviews that might have shed light on psychological motives. "Any suggestion that this is a queen bee phenomenon would be purely speculative," she says. "It just as likely is a matter of women showing an extra measure of concern for lower-income workers. The value of the research lies elsewhere – in highlighting a nuanced approach for organizations in striving for gender pay equity.”
In that regard, another question: since female managers, despite having the means to equalize pay, did so on such an uneven basis, why rely on this strategy at all? Given that pay formalization, as applied to annual bonuses, consistently yielded results that were gender-neutral for these hundreds of bank employees, why not formalize all pay?
“Pay formalization has definite virtues,” the professor replies, “but it also has limits and drawbacks. One problem is that, if we try to formalize a system that is inequitable, we will lock in inequality. Another is that giving managers discretion and autonomy has been shown to enhance their job satisfaction as well as firm performance. Certainly having freedom to make decisions on employee pay is important to managers.”
In conclusion she writes: “From a practical standpoint, my research warns against blindly assuming that either increasing formalization, or increasing the presence of women in management, will provide an effective means for reducing gender pay inequality. Increasing pay formalization may be more effective for reducing gender pay inequality in settings where women are absent from management or managers oversee employees in higher status jobs. Similarly, increasing the presence of women in management is most apt to lead to gender-equitable outcomes in a setting where formalization of rewards systems is low, thus allowing female managers discretion, and female managers oversee employees in lower-level positions. In order to develop appropriate strategies for reducing gender pay inequality, organizations must concurrently consider the potential role of both female managers and level of the employee they oversee.”
The paper, “Pay Formalization Revisited: Considering the Effects of Manager Gender and Discretion on Closing the Wage Gap," is in the February/March issue of the Academy of Management Journal. This peer-reviewed publication is published six times yearly by the Academy, which, with more than 18,000 members in 127 countries, is the largest organization in the world devoted to management research and teaching. Its other publications are Academy of Management Review, Academy of Management Perspectives, Academy of Management Learning and Education, Academy of Management Annals, and Academy of Management Discoveries.