Merit and discrimination within organizations: gender and racial differences in the evaluation and compensation of employees

Abstract

This article investigates how post-hire organizational processes behind evaluating and rewarding employee performance shape wage inequality within organizations. Using personnel data from one large private service organization, I identify and test the two main stages of a common contemporary employer practice ?the extra compensation of workers using performance reward programs? in which racial and gender disparities can be introduced in the distribution of wage increases. This article shows that the first stage of the performance reward program ?the performance evaluation rating stage? is affected, because of its subjectivity, by gender, race or nationality biases. Beyond this first stage, this article also highlights that bias still affects the translation of performance ratings into wage increases during the salary setting stage: My longitudinal analyses show that in the long run different wage increases are given to employees who have received the same performance evaluations, whereby equivalent employees (i.e. in the same job and work unit, with the same supervisor, and the same human capital) receive different wage increases even after having been given the same performance evaluation score, simply because of their gender, race or nationality. I conclude with a discussion of the relevance of these findings to our understanding of how frequently-used organizational practices such as performance-based salary rewards generate gender and racial gaps in wages within jobs in contemporary organizations.