Accounting for the Gap: A Firm Study Manipulating Organizational Accountability and Transparency in Pay Decisions

• Published in: Organization science (Providence, R.I.) R.I.), 2015-03, Vol.26 (2), p.311-333
• Main Author: Castilla, Emilio J.
• Format: Article
• Language: English
• Subjects: Accountability; Analysis; Companies; compensation; Decisions; diversity; Employees; Ethnic groups; Field study; Gender; Gender inequality; Human capital; Income inequality; Inequality; Labor market; Men; Minority groups; nationality; Occupational segregation; Organizational effectiveness; organizational processes; Organizational research; Performance appraisal; Race; Racial discrimination; Racial inequality; Rewards; Transparency; Wage differential; Women; workplace inequality; Workplace multiculturalism; Workplaces
• ISSN: 1047-7039; 1526-5455
• DOI: 10.1287/orsc.2014.0950

Great progress has been made in documenting how employer practices may shape workplace inequality. Less research attention, however, has been given to investigating which organizational strategies are effective at addressing gender and racial inequality in labor markets. Using a unique field study design, this article identifies and tests, for the first time, whether accountability and transparency in pay decisions—two popular organizational initiatives discussed among scholars and practitioners—may reduce the pay gap by employee gender, race, and foreign nationality. Through a longitudinal analysis of a large private company, I study the performance-based reward decisions concerning almost 9,000 employees before and after high-level management adopted a set of organizational procedures, introducing accountability and transparency into the company’s performance-reward system. Before such procedures were introduced, there was an observed gap in the distribution of performance-based rewards where women, ethnic minorities, and non-U.S.-born employees received lower monetary rewards compared with U.S.-born white men having the same performance evaluation scores and working in the same job and work unit with the same manager and the same human capital characteristics. Analyses of the company’s employee performance-reward data after the adoption of accountability and transparency procedures show a reduction in this pay gap. I conclude by discussing the implications of this study for future research about employer strategies targeting workplace inequality and diversity.