How effective are merit-based reward and recognition processes in ensuring employees are treated equally? Could they be increasing – rather than decreasing – demographic biases? If so, what is the solution?
It is widely supported that key career-decisions for individuals should be assessed on merit rather than demographics, such as race or gender. Counterintuitively, recent research has uncovered that pay disparities based on race and gender still exist in workplaces that claim to be meritocratic. Furthermore, it appears that the influence of bias may in fact be exacerbated by ‘merit-based’ processes, despite best intentions
Research conducted by Professor Emilio J. Castilla (Massachusetts Institute of Technology), explores what has been dubbed ‘the paradox of meritocracy’: that merit-based processes increase, rather than decrease, demographic biases.
Why is this happening? It may be that, in knowing that there are systems in place to promote meritocracy, leaders become complacent, forgetting to self-regulate and unintentionally exposing themselves to personal bias. Research has also shown that people tend to think that ‘others’ are more susceptible to bias than themselves, which may be a factor in leader complacency.[i]
So, how can workplaces be successful meritocracies? Castilla suggests that the solution is to introduce higher levels of accountability and transparency to the organisation’s processes, reward and recognition criteria, outcomes and audiences.
The aim of the research was twofold. First the researchers wanted to assess the ‘paradox of meritocracy’ and whether bias increases in workplaces with “merit-based systems”. Second they wanted to test potential solutions that could mitigate the risks and address this problem.
In order to assess, analyse and understand both the cause of the problem and potential solutions, the researchers carried out three studies: (1) An Experiment; (2) Data analysis; and, (3) Applied theory & data analysis.
- Experiment: An experiment was conducted to test the influence of meritocratic values on decision making, and on challenging gender bias.
- 400 MBA students with managerial experience were asked to take on the role of a senior manager at a hypothetical organisation and make recommendations for a small group of employees (with an even gender split) on their pay, promotions and terminations based on their performance results.
- Participants were split into two groups, with one group receiving merit-based company values and the other receiving non merit-based values. Merit-based values were those that were associated with recognition of employees’ skills, effort, abilities and performance, whereas non merit-based values were associated with attributes including race, gender and age.
- Data analysis: Focusing on the implications on gender, national origin, and race, Castilla analysed merit-based pay decisions for a large service organisation. The relationship between the employees’ performance appraisal results and pay increases over time, across a range of demographic characteristics, was also analysed.
- Applied theory & data analysis: Building on the first two studies, the third stage set out to test if introducing accountability and transparency, to the large service organisation, would be effective in reducing demographic disparities:
- Specific actions were taken to increase the transparency and accountability in three areas of the service organisation: process and criteria, outcomes and For example, senior managers were made to follow a standard process when assigning performance based rewards, which included justifying their decisions for the newly introduced performance reward committee who had the authority to decline the decision.
- Data was analysed before and after higher levels of accountability and transparency were introduced.
The findings revealed that in organisations where merit-based systems are in place leaders are more likely to demonstrate biases against minority groups.
While a number of career decisions were analysed, reward decisions were most affected by high levels of bias against gender or race. One reason for this, could be that other decisions, such as promotions or terminations, have greater visibility thus prompting leaders to reflect more closely on their decisions. In contrast, pay disparities were significantly reduced when greater levels of transparency and accountability were introduced into the organisation.
The research provides three key findings: (1) the prevalence of gender and race bias in pay decisions; (2) the inconsistent relationship between performance and remuneration; and, (3) potential solutions to mitigate these issues:
- Experiment – Gender bias
- Merit-based values led to male favouritism. The group given merit-based company values to inform their decisions, displayed high levels of gender bias. In some instances this resulted in females being assigned a 12% lower bonus than their male counterparts.
- Non merit-based values led to female favouritism. The group provided with non-merit based company values displayed the opposite behaviour with positive bias towards females. One suggestion for this finding is that leaders may self-compensate for their known or assumed biases in environments not supported by meritocracy.
- Data analysis – Performance and remuneration
- Performance doesn’t always equal pay. A bias towards white men, over equally qualified females, ethnic minorities and non-U.S born employees was demonstrated when recommending pay increases, resulting in significant pay disparities. Specifically, when compared with equally performing white men the annual salary increase rate for women was 0.4% lower and 0.5% lower for Hispanic-American and African-American men and 0.6% lower for non-U.S born employees.
- Lower rate of salary increase over time for minority groups. The research suggests that lower salary rates may be due to the subjective nature of performance appraisals in which personal factors unrelated to performance often influence the decision.
- Applied theory & data analysis – Mitigating the risk
- Higher accountability and transparency equals lower disparity. Once higher levels of accountability and transparency were introduced to core employee lifecycle processes, the pay disparities in this organisation shrunk to an almost negligible amount.
- Data supports successful outcomes. Through the use of transparent compensation, promotion and termination data provided to them, senior leaders were able to compare the results of their decisions with those of other leaders in the company, holding them accountable and allowing them to make more informed merit-based pay decisions.
So should organisations back-track from pursuing meritocracy? Clearly not. What this research argues is that while meritocracy is a worthy goal embedding a meritocracy is hard. To help leaders ensure that their organisations are meritocratic, systems and processes should be reviewed, and perhaps enhanced, to identify if they are unintentionally leading to biased outcomes.
If they have been built to reflect old fashioned ideas of what good performance looks like (i.e. based on ideas from previous generations of leaders) or if they are not strong enough to withstand unintentionally biased practices, bias will creep in.
The research reveals two key strategies to help de-bias reward processes and practices, namely transparency and accountability. Where there is transparency of information, and they are held accountable for the outcomes, leaders make less biased decisions.
Additionally, recent research conducted by the Australian Male Champions of Change reveals the importance of implementing a definition that is objective, and avoids valuing qualities that only align to the way things ‘have always been done.’ This will ensure that organisations have the right people and skills to do what needs to be done in the future.[ii]
Once there is alignment on the definition of merit, organisations can take action to mitigate bias through the following strategies:
- Increase accountability and transparency in reward and performance processes
- Ask the following three questions when applying accountability and transparency:
- Process and criteria – How is merit-based pay decided and distributed?
- Outcomes – What rewards are employees getting and who is analysing and collecting the data?
- Audiences – Who will have visibility of the processes and outcomes and who is responsible for ensuring the practices are fair?
Ultimately, the need to value employees based on their merit, rather than their gender or race, is essential to the success of any organisation. However, simply applying the label of a ‘merit based’ process or ‘meritocracy’, will only devalue merit and encourage complacency. Leadership at all levels in an organisation must be held accountable for their decisions and be transparent in their logic.
As summarised neatly by Meredith Hellicar, CEO and Managing Director of global leadership and development firm Merryck &Co: “To avoid the merit trap requires us to use the combination of discipline in process and flexibility in thinking.”[iii]
For more information, contact Emilie Hollins (firstname.lastname@example.org).
To read the full article, see Castilla, E. (2016). Achieving Meritocracy in the Workplace. MIT Sloan Management Review, Summer 2016.
[i] Bourke, J., (2016) Which two heads are better than one? How diverse teams create breakthrough ideas and make smarter decisions. AICD
[ii] Male Champions of Change; Chief Executive Women, (2016). In the eye of the beholder: Avoiding the merit trap.
[iii] Male Champions of Change; Chief Executive Women, (2016). In the eye of the beholder: Avoiding the merit trap.