Wharton professor Janice Fanning Madden proves once again that solid social science research can settle lawsuits and chip away at discrimination. Asked to testify in class-action law-suits of female stockbrokers against two large firms, she used company data to tease out the evidence of gender bias and demonstrate that the firms’ arguments had no basis in fact.
Stockbrokers are the highest paid sales occupation, yet it has the largest gender pay gap. Female stockbrokers earn 54-60% of their male counterparts. Since stockbroker compensation is based almost entirely on commission, the obvious explanation for the pay gap is that women simply generate fewer sales.
The trading firms were convinced that this was a matter of sales capacity – low-performing female stockbrokers stayed while low-performing males left, and women worked less intensely due to household responsibilities and other factors. Professor Madden proved their arguments wrong. Through statistical analysis of account records tied to each stockbroker, she demonstrated that when men and women received equivalent clients and accounts, they generated equivalent sales. Yet she found that on the whole women were being given inferior accounts, which led to lower commissions.
The point is not to accuse male managers of blatant sexism. In most cases, their biases were likely unconscious. Decision-making research demonstrates that people are bad at predicting performance, and that in instances where the workplace is overwhelmingly male, the manager is more likely to have a subjective “hunch” that a man might do better than a woman. So if women start off with inferior accounts, they will generate lower sales and become less and less likely to receive a lucrative account.
The firms protested this explanation. They claimed that the better accounts went to more experienced brokers, who happened to be male, a disparity that would go away as the female workforce matured. That is where Dr. Fanning Madden really surprised them. The company records demonstrated that when a broker left, the managers redistributed more accounts to the newer, “hungrier” brokers, not those with more experience and an already heavy client base.
Thus both the “experience” and the “sales capacity” arguments of the financial giants fell apart, the lawsuits were settled and the women received substantial damage pay. Yet female stockbrokers are still earning less than men, unconscious biases are still shaping practice, and there is not enough pressure for systemic change.
The challenge as I see it is to take powerful research about the causes of the pay gap beyond academia and federal court, and put it into the hands of managers, operations professionals and HR staff the world over.