Naming Is Not Shaming? Firms Paying Women Less without Reputation Loss

Gender pay gap disparity – paying women less than men for comparable work – is widespread and unfair, and much attention is given to how to remove it. Perhaps the most prominent option is to require pay gap disclosure, so that firms paying women less will be revealed and their reputation harmed. The idea is of course that two things will happen – firms will act to improve their reputation through paying women more, and female job applicants are warned and can stay away from these firms until conditions improve.

The US has been reluctant to mandate transparency, but thanks to pay transparency laws elsewhere, we now know more about its effects. In a recent publication in Administrative Science Quarterly, Amanda Sharkey, Elizabeth Pontikes, and Greta Hsu studied the effects of mandated publication of the gender pay gap in the United Kingdom. One piece of good news: firms with pay parity received a temporary improvement in employee evaluations when that information was made public. One piece of bad news: that was the only good news. In particular, firms with pay disparity showed no observable short- or long-term decline in employee evaluations, and hence suffered no reputation loss either.

Failing to find an effect was not a result of data problems; nor was it inconsequential. The authors were analyzing Glassdoor evaluations, which are reviews of each firm anonymously posted by its employees. Each evaluation is accurately timed, so it is easy to match the evaluation with the disclosure of the pay gap. The evaluations are consequential because many potential job seekers check Glassdoor reviews, both the numeric evaluations and the written text.

This is a puzzle, and Sharkey, Pontikes, and Hsu proceeded to look for explanations. Interestingly, although some explanations could be excluded, not a single explanation could account for the failure to shame the firms with a pay gap. Part of the reason is that there are simply too many possible explanations, and they probably work together to make this happen. Because they add up to letting firms get away with unfair payment, it is worthwhile listing three explanations as warnings.

Pay attention! There is some evidence that employees don’t fully pay attention to the pay gap when assessing their own workplace. Extending that observation, it is fair to wonder whether potential job applicants pay enough attention too. Paying attention is the first protection against walking into a trap.

Interpret information! There is some evidence that employees react less when the pay gap is obscured by job heterogeneity. That is natural, but also discouraging, because more deliberate and conscious interpretation would usually help them understand that they are in a pay disparity trap.

Act on interpretation! There is some evidence of resignation, with employees not reacting to the pay gap because they have become used to it. That is exactly how traps work – people do not escape from them.

The reason to list these warnings is that it is hard to think of any policy to reduce the pay gap disparity that would be more effective than disclosure. Organizations constantly need to recruit new employees, and they always worry about their ability to attract the best. Obviously so, because there is another pay gap that is much more logical and beneficial for the organization than the gender pay gap. There are few jobs in which the pay gap between the most and the least productive employee is so great that the organization does not care about employee quality. The most productive employee is usually so much better for so little extra pay that having all the potential stars apply – male and female – is a great benefit for the organization.

If employees and job applicants pay attention, interpret information, and act on the interpretation, pay disparity would simply be too costly for the organization. Perhaps they will gradually learn to do so.

Sharkey, Amanda, Elizabeth Pontikes, and Greta Hsu. 2022. "The Impact of Mandated Pay Gap Transparency on Firms’ Reputations as Employers." Administrative Science Quarterly, forthcoming

Photo credit.

Go For it! What Fourth-Down Plays Can Tell Us About Organizational Decision Making

Let’s start by acknowledging that top-division professional sports players and coaches make very intelligent decisions – probably better than many corporate managers. After all, they drill and execute similar scenarios over and over again while facing adversaries who are familiar with their every move. So, let’s drop the “dumb jock” stereotype and admit that football, like soccer, has the same (or fewer) decision-biases and misjudgments as those we would see in a non-sport organization. They can teach us a lot about decision making.

In particular, fourth-down plays are very instructive because they are when a football team either kicks the ball away or decides to “go for it” and try to gain enough yards to keep possession of the ball. It is an excellent context for examining how people handle risks and rewards, and Xavier Sobrepere i Profitos, Thomas Keil, and Pasi Kuusela took advantage of this in a recent article in Administrative Science Quarterly.

Their idea is simple and novel. It is well known that people consider the risk of gains and losses from their decisions, and mentally they overweigh losses. It is well known that performance feedback on goals affects organizational decisions, so changes and risk taking are much less acceptable when performance is high. Putting these two together, every decision has content (risks and returns) and context (performance relative to goals). These two are usually considered separately, but actually they work together like two blades of a scissors.

How does that influence fourth-down decisions? This is where the sophisticated, but still biased, decision making comes into play. Potential rewards are important but not always important: short fourth downs make teams more likely to go for it, but the difference is much bigger in the second half of the game. Goals are important but not always important: teams that are behind in the score (especially more than 10 points) are more likely to go for it, but the difference is much bigger in short fourth downs. And in fact, all of the effects listed here are bigger when the team has advanced beyond the middle of the field, so the opposing team’s endzone is close.

To someone who follows football closely, this may seem to make a lot of sense, leading to the question of whether there is any bias here at all – isn’t this completely rational? No, it is not. Even when making risky decisions that are essentially random, potential gains and losses should not be seen as less important when performance feedback is positive. Gain, loss, and risk should not become less diagnostic in such a decision context, but football plays clearly show that they are. And football is a game against an adversary, so a tendency to go for it more often in a specific decision context is an easy “tell” that the opposing team can use to adjust their defense.

The same is true outside the world of sports. Perhaps the most important part of performance feedback theory is not how organizations search for alternatives and make changes when performance is below aspiration levels. It is the opposite – how they fail to do so when performance is above aspiration levels. If managers are like these football teams, even known information about opportunities – similar to a one-yard fourth down on the opponent’s 20-yard line – may not be seen as diagnostic enough for their decision. After all, they are meeting their goals.

This selective decision making, with performance feedback having an important effect in directing attention towards or away from opportunities, is the true bias revealed by the fourth-down plays. It is one that managers should pay attention to, and so should all those who teach management.

Sobrepere i Profitos, Xavier, Thomas Keil, and Pasi Kuusela. 2022. The Two Blades of the Scissors: Performance Feedback and Intrinsic Attributes in Organizational Risk Taking. Administrative Science Quarterly, forthcoming. 

 

Stigmatize to Rehabilitate? Organizational Marking of Transgressors as Social Control

Organizations have rules, employees who break rules, and rules on how to punish employees who break rules. Often these are thought of in simplified terms as ways of making transgression costly so that employees will not transgress. The simplification is silly – we know that transgression occurs anyway, so it is necessary to think more broadly about punishment rules. If the organization keeps the transgressor in employment, can it also manage a rehabilitation that ensures good work relations and avoids repeated rule-breaking? How can this be done?

Surprisingly, these questions have not seen much investigation despite their obvious importance. But thanks to Erin Frey, Ethan Bernstein, and Nick Rekenthaler we now have research on this topic based on a military school (let’s call it the Academy) that has an honor code, cadets who break it, and a particular rule on how to punish those it retains because the violation is not too severe. The rule is interesting because it requires violators to wear a pin on their lapel indicating a rank one level lower than the lowest regular rank in the Academy for a period of many months. Given the military obsession with rank and alertness to symbols of rank, this marks them to everyone as having transgressed the honor code. In short, they are “screw-ups,” and everyone can see it. 

To an observer with some interest in history, this resembles a variety of medieval punishment methods meant to stigmatize violators and isolate them from their village, town, or city neighborhood. Stigmatization, whether intended or not, is generally quite effective in isolating individuals, attracting disdain, and preventing cooperation with others. So, can such a mark help rehabilitation?

There is a key difference between a village and an organization, and maybe especially an educational organization. Organizations have clearly defined boundaries, so it is obvious to all that the marked transgressor is still a member. Organizations have interdependent tasks, so the marked transgressor needs to communicate with others, and vice versa. This creates opportunities for explaining the transgression, expressing regret, and showing recovery.

Arguably the marking of a transgressor also creates a need to explain, express regret, and show recovery. The marked transgressor will be a stigmatized member rather than a regular one, so there is a social pressure to show signs of rehabilitation. In the Academy, there was an expectation that the marked transgressors should advocate and display even higher standards of behavior than others, and indeed they did so.

How general is this effect? Here we need to speculate a bit, but some boundaries seem obvious. What about marking transgressors in customer-facing work? I would be uncomfortable seeing a barista with a mark indicating some sort of transgression. Even more so an airline pilot. Indeed, the uniforms used in many kinds of customer-facing work (again, all pilots and many baristas) are supposed to create generalized trust that does not single out anyone as being better or worse than others.

Still, even if the effect of marking violators as a path to rehabilitation is not fully general, it is very interesting that it is possible. Organizations are hierarchies that can punish and try to rehabilitate through rules and hierarchical approaches, but they are also social systems. The marking of violators makes use of this and has an effect that is surprisingly beneficial.

Frey, Erin, Ethan Bernstein, and Nick Rekenthaler. 2022. Scarlet Letters: Rehabilitation Trough Transgression Transparency and Personal Narrative Control. Administrative Science Quarterly, forthcoming. 

Is there a Strategic Organization in The Behavioral Theory of the Firm?

Questions are great. Sometimes I get asked questions that stimulate ideas that I would not have thought of otherwise, and that lead to research. When the editors of the 20^th anniversary special issue of Strategic Organization asked me to write about the relation between the Behavioral Theory of the Firm and Strategy, it made me wonder whether there was something special about the match between this theory and this field of research.

Why this question? The behavioral theory of the firm fuels an active and growing research agenda found mainly in organization theory, but also with much important work in strategy. So, it is possible that we can simply stand by and let things develop on their own, and the synergies between research in these two fields well take care of the rest. Yet somehow, that did not look like the right answer.

The reason is that the basic interests of the fields of strategy and organization theory are different. Obviously not, because that is why they are different fields. To the Behavioral Theory of the Firm, this may not seem to matter because theory is about the mechanisms that drive outcomes in the world, not about the outcomes. It matters for research, though, because different outcomes can be studied depending on the interests of a field. This is a good reason to think of how the Behavioral Theory of the Firm and Strategy relate to each other.

The result of our thinking was a series of questions on how strategy is shaped by the mechanisms in the behavioral theory of the firm. This is the right approach because the Behavioral Theory of the Firm is made for explaining what a firm – or any kind of organization – will do. So, it is the kind of theory that can be used for explaining the origins and changes of firm strategy.

There are already partial answers to all of these questions, but still a lot of room for progress. The very short answer is that we developed a framework organized around how strategy is shaped by the 1) organizational structure, 2) organizational decision-makers, 3) organizational history, and 4) organizational environment. The Behavioral Theory of the Firm has useful ideas in each of these factors. The (slightly) longer answer? Please look for it in the short essay coauthored with Cyndi Man Zhang.

Greve, H.R., C. Zhang Man. 2022. Is there a Strategic Organization in The Behavioral Theory of the Firm? Looking Back and Looking Forward. Strategic Organization, forthcoming.

Are you well connected? Hide it!

As anyone in business will testify to, personal connections matter a lot for success. They are the source of information and ideas, they can be used to draw in resources and capabilities, and they give rise to yet more connections. The naïve version of this narrative is that more connections are always better, but we know that’s not true. Personal connections are maintained through attention and care, so having too many means neglecting many. Instead, what matters most is to be connected to people who are not connected to each other: to be a broker of personal ties. The network of a broker is the most efficient one for drawing in novel, timely, and helpful information, among other things.

Except that being a broker is not a fail-safe path to success – we know it often does not work. Explaining when it works, and when it does not, was the goal of research done by Alessandro Iorio and published in Administrative Science Quarterly. His idea was simple and novel. Maybe I will see brokers as slightly suspicious characters because they know so many people I don’t know? Maybe as a result, I will hold back the information, resources, and network ties that I would otherwise provide to my contacts who I do not see as being brokers?

Making this simple idea especially neat is that I may not be right about who is a broker and who is not. Accordingly, being a broker who is not perceived as a broker is great; such brokers in disguise get all the benefits. Not being a broker but being perceived as one is a disaster; their personal connections have a poor structure and are poorly fed with information.  Iorio went ahead and tested this idea by getting data from a consulting firm and by doing experiments.

The conclusion? Consultants who were brokers in disguise were clear winners in the ratings for being top innovation performers; two-thirds of them achieved this rank. Meanwhile, being a broker while being perceived as one was no better than not being a broker and not being perceived as one either. Brokerage works when it is hidden; not otherwise. Why is that? When gauging the effect of trustworthiness of each person, it became clear that being thought of as a broker meant being seen as less trustworthy. This explained brokers’ inability to take advantage of having better personal connections than other consultants.

What does this mean for how we deal with personal connections in our career and life? Turning this evidence into advice is complicated. The benign version would be that modesty is a virtue, because dropping names of people others do not know places you at a disadvantage whether or not you really know them. The less benign version is that the successful user of personal networks is fundamentally dishonest because this person gives the impression of having a different network of contacts than the actual one. Of course, we should not be too surprised by this kind of problem. The behaviors that evidence shows to be effective when managing other people are not always the most admirable ones. 

Iorio, Alessandro. 2022. Brokers in Disguise: The Joint Effect of Actual Brokerage andSocially Perceived Brokerage on Network Advantage. Administrative Science Quarterly, forthcoming.

 

The Path to Hit-Making: How Early Music Variety Helps Music Artists

The creative arts are full of one-hit wonders who produce exactly one famous hit and are never heard from again. Most famously this happens in music, but it is also true for authors, visual artists, and performing artists. Is it possible to predict which creative artists can have multiple hits? The usual answer is, “Of course not!” But if it were possible, such knowledge would be useful outside the arts as well. Organizations of all types often need to develop novel and creative products, and even those products that involve engineering or science ultimately start with creativity.

Actually, we are making some progress in understanding how multiple hits are created. Research by Justin M. Berg published in Administrative Science Quarterly looked at musical artists and discovered that a key factor in becoming a multi-hit artist is the music made before the first hit. This sounds strange but is easy to explain. Before the first hit, artists are generally ignored and can freely choose what to create, and they may end up making choices that differ a great deal from each other. After the first hit, they are under the magnifying glass of the world (and themselves) and typically try to stay in tune with what their audience wants without changing too much from their past production. Problem is, what their audience wants keeps changing.

This is where the production before fame becomes important. Some musicians make very novel music, some musicians make a great variety of music, and some musicians make music that lacks novelty and variation but hits exactly what the audience wants at the moment. Who can repeat the hits? When the question is phrased this way, it seems clear that variation is a good thing because it lets the musician adapt to new trends without changing too much from past work. That’s exactly what the research found. But interestingly, novelty before becoming popular also let the musician produce multiple hits. Maybe that’s because it creates a sense of freedom and an audience expectation of some surprises?

But wait, before we worry about how a musician can get multiple hits, maybe we should think about how to get the first hit. So here is some bad news: Novelty is great for multiple hits but bad for getting the first one. Fortunately, the same is not true for variation, which helps the chances both for a first hit and for multiple hits. Of course, if you are an artist, you know that variety is a very hard thing to achieve, maybe even harder than novelty. In fact, the main driver of variety seems to be repeated failure when doing the same thing over and over again, illustrating that it is not just hard to accomplish but also hard to attempt. Cost and benefit…

What do these findings on musicians tell organizational decision makers? More than you might assume. First, we know that creativity has similar effects on innovative work across a wide range of products, so we can actually learn about product design from successful musicians. Second, these findings directly tell us what resumes should look like when hiring someone to do development work – look for variety! It is valuable and costless, because job applicants will come with a great variety of variety levels.

Finally, and this part could be costly, the findings also tell us what type of workflow a development team should have. Unlike musicians and other creative artists, who are forced by their audiences to stay relatively close to their past production, development teams will maintain a variety of projects if they are told to do so. And we know that variety increases the likelihood of success.

Berg, Justin M. 2022. One-Hit Wonders versus Hit Makers: Sustaining Success in Creative Industries. Administrative Science Quarterly, forthcoming.

 

 

Firms Following the Law: Legal Inequality Promotes Actual Inequality

Do firms follow the letter of the law? They are supposed to, and they usually do. Do firms follow the spirit of the law? Sometimes, and especially when their executives agree with it. These are general and obvious statements, but it was only recently that we learnt how far firms will go in following the spirit of the law. Suppose that a US firm is in a state that just passed a law banning the affirmative action practices that help minorities get hired and promoted in most of the nation. Will the firm continue to hire and promote as before, or will it make changes?

The question is important for many careers. Black and Hispanic employees are only half as likely to become managers as White employees. Affirmative action policies were put in place to even these odds, and affirmative action bans are promoted by politicians who want to counter the movement towards fair employment practices. In nine states, such bans were passed. But did the bans have any effects? Research by Letian Zhang published in Administrative Science Quarterly answers this question.

The key feature of affirmative action bans is that they don’t ban firms from doing affirmative action – they only ban the public sector from doing so. But they can still serve as normative cover for firms and executives who are against affirmative action and similar equal employment opportunity practices, and so inspire them to weaken or even roll back any affirmative action practices they are doing. Did this happen?

Yes, definitely. The proportion of Black managers in a firm is a sensitive indicator of equal opportunity practices, and it showed clear differences between firms that were in a state banning affirmative action and firms in a state that did not ban it. For comparable establishments, the proportion of Black managers dropped by 0.63 percentage point, with most of this drop experienced by Black women. When interpreting this number, keep in mind that the proportion of Black or African American people in the US is 12.4 percent, so a drop of 0.63 percentage point is roughly a 20-percent drop relative to the population.

This difference was not the same across firms, however, because the political views of the Chief Executive Officers made a difference. Most of the drop in the proportion of Black managers was a result of firms with conservative CEOs, which saw a drop of 0.93 percentage points in the proportion of Black managers, compared to firms in states without affirmative action bans. Again, compare with the drop in all firms combined (0.63) and the total proportion (12.4), and the difference is clear.

So, the law is not just a law but also a signal. But signals are not for everyone; they are followed by those who are most alert to them and friendliest to their message. That, of course, is the whole point of passing a law that only some of the many organizations in a state need to follow. Signals are symbols, and symbols matter.

Zhang, Letian. 2022. Regulatory Spillover and Workplace Racial Inequality. Administrative Science Quarterly, forthcoming.