The Reasons Behind Inequity In Pay

When it comes to evaluating an employee’s performance, race can play a role in how managers view worker productivity — and in turn, affect how they get paid.

Society for Industrial and Organizational Psychology member Yan Chen and her colleagues Ingrid Fulmer, Patrick McKay and Derek Avery recently conducted a study on how employees of different races are paid for performance. After collecting data from a sample of 14,185 sales associates from more than 750 retail stores across the United States, they found that the race of an employee can influence how managers view that work performance.

Chen spoke with Diversity Executive about the study and what organizations can do to improve pay equity. Below are edited excerpts.

You recently conducted research on how employees of different races are paid for performance. How would you describe your findings?

The findings showed that the sales performance-pay relationship was stronger for White than for Black and Hispanic employees in less supportive diversity climates. By contrast, black and Hispanic employees gained more pay as a function of high sales performance relative to their white colleagues in pro-diversity climates. Interestingly, we did not find the pay-for-performance relationship differ between white and Asian.

What do you think was the cause behind your results?

Yan Chen, Society for Industrial and Organizational Psychology
Yan Chen, Society for Industrial and Organizational Psychology

We think the reason for stronger sales performance-pay relationships for white than for black and Hispanic employees in less supportive diversity climates is that managers may have different attributions of performance for whites and minorities. Specifically, managers tend to attribute white personnel’s performance to internal factors, such as their abilities and efforts, but may discount minorities’ performance to external factors, such as good luck or help from others. These differential attributions and evaluations can influence the subsequent reward decisions.

In pro-diversity climates, employees perceive greater fairness and commitment to diversity. These heightened expectations provide an external motivation for managers to support such climates through justifiable employment decisions. Thus, managers are less likely to discount minorities’ performance in pro-diversity climates. Particularly, minority group members who strongly violate negative stereotypes by performing well are rated more extremely positively, and rewarded more.

We found that the pay-for-performance relationship for Asian was similar to the one for white. We think it is because there are different dimensions of stereotypes, such as competence and warmth, and Asians tend to be perceived as high competence with low warmth. Thus, Asians are expected to do well, and managers tend to attribute their performance to internal factors such as abilities and skills, like whites.

What can organizations do to establish better equity in pay?

Organizational leaders should not only work to establish greater transparency regarding the bases of performance rewards, but also ensure that diversity goals of equal treatment are appropriately implemented.

Why was this area of research important to you?

The workforce demographic is changing toward more diverse, and there is plenty of evidence suggesting racial-ethic pay inequalities among American workers. But we know less about factors that lead to this situation.

Since many organizations use performance as the basis for pay, we wonder whether pay for performance relationship differs depending on employees’ racial-ethnic group membership. Also, pro-diversity climate has been found to reduce turnover for some minority groups and reduce the performance disparities among racial-ethic groups. We wonder whether organizations’ efforts to enhance diversity climate, usually aimed at generating a sense of inclusion, might also provide a more tangible “hard” benefit to employees via effects on compensation. We hope this area of research will shed some light on it.