At both businesses, stockbrokers’ salaries were entirely determined by commission by the end of their second year after passing the Series 7 exam required to become a registered broker. At the time the lawsuits were filed, there were “significant” gaps in compensation among male and female stockbrokers, Madden writes. “There are really only two reasons for a gender gap in compensation derived from commissions on sales… Women are less effective at sales, on average, than men; and/or performance support bias – the sales opportunities, including account assignments and the various supports used to produce sales assigned to women, are inferior to those assigned to men.”
Madden examined both possible factors using data on more than a billion individual transactions on customer accounts within the firms between 1994 and 1996. She notes that there are several possible reasons why women may achieve worse sales figures than men: It could be that they simply have less innate ability, but it could also be due to societal factors like clients being less willing to work with, or make purchases when dealing with, women stockbrokers.
The “natural experiment” was created by observing sales yields from stockbrokers of both genders on accounts with similar histories that were assigned to incumbent stockbrokers after the original overseer of the account left the firm. At one firm, women were significantly less likely than men to receive these transferred assets. But when they did get these accounts, women had stronger sales achievements than men. Men and women were equally likely to be given transferred accounts at the other firm, and in that case their performance on accounts with similar histories and yields was equally strong.
These results provide evidence that the performance differences do not stem from innate ability, Madden says. She also did not find strong support for the hypothesis that customer bias played a significant role in the gender pay gap. Instead, Madden discovered that women at both firms were less likely to receive the types of accounts that produced higher commissions. This in turn hurt their salaries and their ability to compete for benefits that were awarded based on performance.
“Both brokerage firms alleged that women receive inferior account transfers because they generated lower commissions in the prior year, and the prior year’s commissions were used to allocate transferred accounts,” she writes. But employees weren’t operating on a level playing field in the way clients were parceled out. And the consequences of being relegated to “inferior” accounts only balloon over time, Madden adds: “The effects of small annual differences in the distribution of accounts or of other forms of performance support accumulate over a career as early career differences allow brokers to qualify for additional benefits, such as titles [and] office space, based on account size or production.”
The lawsuits were settled before going to trial and, as part of those agreements, the two firms agreed to change their policies so accounts were distributed to brokers using a standardised system. Madden heard from lawyers working with the plaintiffs that people from one of the firms commented on her findings “and said [the company] had clearly been making mistakes in assigning accounts… They had not realised how well women were doing.”
According to Madden, the study is the first to show how gender bias affects employees working under a seemingly objective performance-based pay system like commissions, rather than one where salaries are determined by subjective performance evaluations. She notes that the research highlights how important it is for firms to examine the ways that subjectivity can creep into, and damage the effectiveness of, systems designed to encourage equal treatment in the workplace.
“In lots of occupations, women or minorities can get the short end of the stick because people are operating without thinking,” Madden says. “They would never purposely… discriminate against somebody, but they’re reacting with their gut and unfortunately, when we react with our gut, we sometimes bring in prejudices we’re not aware that we have.”
