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The vicious cycle of the gender pay gap

The gender pay gap is a labyrinth of unconscious prejudice and blatant discrimination, a byproduct of unbalanced professional opportunities, educational prospects and deeply-entrenched societal norms. With so many forces at work, getting to the root of glass ceiling issues within a single firm or industry is difficult, if not impossible. Janice Fanning Madden, a Wharton […]
The vicious cycle of the gender pay gap

The gender pay gap is a labyrinth of unconscious prejudice and blatant discrimination, a byproduct of unbalanced professional opportunities, educational prospects and deeply-entrenched societal norms. With so many forces at work, getting to the root of glass ceiling issues within a single firm or industry is difficult, if not impossible.

Janice Fanning Madden, a Wharton real estate professor and a professor of regional science and sociology at the University of Pennsylvania, had the rare opportunity to examine the mechanics of the pay gap among male and female stockbrokers while acting as an expert witness in class action lawsuits filed against two large brokerage firms in the early 2000s. Women from the firms claimed that the pay structure at the companies unfairly benefitted men. Leadership at the brokerage houses contended that both men and women were paid using the same commission-based system and that women were paid less on average because they were worse sales people than men.

Madden found that women were assigned inferior accounts, which led to them earning lower returns and smaller commissions. As Madden notes in “Performance-Support Bias and the Gender Pay Gap among Stockbrokers,” this perpetuated a vicious cycle because the firms doled out amenities that often aid in better returns – such as bigger or more attractive offices, support staff and mentors – based on employees’ sales records. Thus, women not being given the opportunity to handle a lucrative account today also hurt their chances of being given advantages that could have a significant impact on their future efforts.

“I wasn’t able to see what kind of offices [the women] had, what kind of secretaries or what kind of titles,” Madden says. “But the decisions of assigning those things to women were made by the same people who were stiffing them on the accounts. They were probably dealing with less support in these other areas, even when they had the same type of account [as men] to work with.”

Using a “natural experiment” based on sales generated by accounts that were transferred by management from one broker to another, Madden was able to analyse performance when the playing field for accounts was equal – when female employees were working with clients who had same potential to produce high commissions as those handled by male stockbrokers. Madden shows that the women produced sales that were at least equivalent to those produced by men. “I was quite surprised that women were such strong performers. I had sort of thought that the brokerages were right and that women were less likely to churn their accounts than men. That was not beyond belief to me,” she says, pointing to evidence showing that women overall tend to invest their own money more conservatively than men. “But they’re given the same incentives as men to sell on their accounts, so they behave in the same way.”

A gut reaction

Over the past 15 years, women have accounted for about one-third of all full-time stockbrokers. During that time, Madden notes, their earnings have grown from 54% to about two-thirds of the salaries earned by men – but the job still has the largest gender pay gap among sales positions, although it is also the highest-paid of those positions overall. The two organisations Madden studied were large, national full-service brokerage houses that sold financial products primarily to individual investors. Women made up a relatively small percentage of the stockbroker ranks at both firms – 11.2% at one and 13.8% at the other.

“But the gender gap in wages at these two big firms is much smaller than the gender gap for stockbrokers, [according to] the Census,” Madden says. “It’s not because these two firms discriminated less but because women are more likely to work in small firms that are less successful. These firms also had fewer women proportionally than the occupation as a whole so some of the difference comes from the difficulty of getting a foot in the door of a major stock brokerage firm.”