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. The most progressive companies have thus created formal systems for ensuring that job applicants and employees are judged solely by their efforts, skills, abilities, and performance, regardless of their gender, race, class, national origin, or sexual orientation.
However, in research studying workplace inequality and merit-based pay, the author found that such formal systems are no protection against demographic bias. When managers believe their company is a meritocracy because formal evaluative and distributive mechanisms are in place, they are actually more likely to exhibit the very biases that those systems may seek to prevent. The very belief that an organization is meritocratic may open the door to biased, non-merit-based behavior when managers make key individual-level career decisions.
The good news, the author reports, 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 hiring and evaluating employees. It is also a matter of monitoring and evaluating the outcomes of such company processes and 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 — often referred to as “people analytics” — can enable companies to identify and correct workplace biases.
The author conducted a longitudinal investigation of the translation of employee performance evaluations into compensation decisions at a large service organization in North America. He found that, over the long run, women and minorities received lower salary increases than white men with the same performance evaluation scores, even after controlling for job, work unit, and supervisor effects.
The company’s solution was to adopt a set of organizational procedures that incorporated both accountability and transparency into its performance reward system. The intervention consisted of introducing three key changes. First, a performance reward committee was appointed to monitor the fairness of pay decisions. Second, all senior managers had to follow a formalized process for assigning rewards based on employee evaluations. This process required the senior managers to briefly justify how much was awarded to each employee in their work unit. Third, the performance reward committee was granted the authority to modify pay decisions made by senior managers.
After the new system was implemented, the author found significant reductions in the gender, race, and foreign nationality gaps for merit-based pay rewards. In fact, any remaining differences from such biases were negligible. Follow-up interviews with executives and managers at the company suggested that both the accountability and transparency mechanisms had been effective in reducing those pay gaps.