Do Merit-Based Pay Systems Reduce the Gender Compensation Gap?

A new study led by Eunmi Mun, an assistant professor of labor and employment relations at the University of Illinois, finds that rather than reducing gender-based pay inequality by limiting managers’ reliance on factors such as gender bias and favoritism, a shift to performance bonuses and other meritocratic employment practices may actually widen the gap by preserving the status quo.

In a longitudinal study of almost 400,000 employees from nearly 400 firms over 12 years, the gender gap in bonus pay was found to be greater in workplaces with a merit-based system than in workplaces where the pay scale is determined by seniority. Researchers tested the impact of merit-based systems on three types of compensation: base wage, bonus pay, and annual earnings. Findings from the analysis show that the gender bonus gap was higher at companies with merit-based systems, but there was no significant increase in the gender gap in total annual earnings, which includes all types of monetary compensation.

“Given the high level of gender inequality produced under the traditional employment system, many expected that the reforms pushing meritocracy would help decrease workplace gender inequality,” Dr. Mun said. “But we didn’t find strong evidence of an increase in the meritocratic distribution of rewards between men and women. Rather, we find that in most cases, rewards were distributed in a more, not less, biased way in workplaces that adopted a new merit-based reward system.

“Even as it’s become one of the dominant ideologies of our era, there are plenty of warning signs about meritocracy,” Dr. Mun said. “Our study shows that the promises of meritocracy may be illusory and that a healthy skepticism of policies driven by meritocracy is warranted.”

Dr. Mun holds bachelor’s and master’s degrees in sociology from Seoul National University in South Korea. She earned a Ph.D. in sociology from Harvard University.

The full study, “Meritocracy at Work?: Merit-Based Reward Systems and Gender Wage Inequality,” was published on the website of the journal Social Forces. It may be accessed here.