In the wake of the financial meltdown, performance-related bonuses are hardly flavour of the month in Main Street America. But now they have been found to be gender and racially biased, too.
A study by Professor Emilio Castilla of MIT's Sloan School of Management has argued that white men often receive higher bonuses than their colleagues from minorities.
In fact, merit-based rewards and other common performance management practices used by the majority of U.S companies can actually increase bias and reduce equity in the workplace, he has concluded.
The study of 9,000 non-management employees at a single U.S company employing 20,000 people compared white male and minority employees in the same job and work unit. They also had the same supervisor and experience and education levels.
It found that Asian-American employees received bonuses 2.9 per cent lower than those of their white male counterparts.
The situation was even worse for African-Americans employees, who received bonuses 2.4 per that were cent lower, with women receiving bonuses that were 2.1 per cent lower.
Non-U.S-born employees received bonuses that were five per cent lower than those of their U.S-born white male counterparts, the study also found.
Such practices and policies occurred even when employees got equal scores on their performance evaluations, Castilla found.
Such "performance-reward bias" could only be overcome by increasing accountability and transparency in the processes and routines that connected performance evaluations and wage increase decisions, he argued.
The disparity also occurred despite the fact that the organisation concerned went out of its way to train managers to ensure that how they set performance ratings was fair and diligent.
What appeared to be happening was that bias appeared to be creeping into the process at the next stage, when the managers' supervisors determined compensation based on those ratings.
"Perhaps these merit-based practices are intended to increase workers' job satisfaction and motivation to work hard, but to what extent are these practices working to solve workplace inequality?" said Castilla.
"I found evidence of what I call 'performance reward bias' where even assuming that employers successfully find fair and unbiased ways of measuring employee merit during the performance evaluation stage, they can still potentially introduce bias and discretion in the way performance evaluations are used to determine employee compensation and promotions during the performance-reward stage," he added.
The bias generally seemed to be happening at two points in the performance appraisal process, he argued.
First, it could occur when a head of a unit (or head of supervisors) recommended to HR a specific salary increase for an employee using the performance evaluations received from the evaluating managers.
Second, the bias could occur when HR made the decision to approve or reject a given salary increase recommendation made by the head of the unit.
While greater transparency reduced the incidence of bias, there were several reasons why lower levels of transparency continue to exist, he argued.
Year-to-year salary increases for individual employees were generally not observable to the rest of employees and administrators, eliminating any salary comparisons among employees and potentially masking unfairness.
Also, because most yearly salary increases were quite low, salary disparities among employees were so small they tended not to be noticeable overall.
In addition, because employees only tended to stay at the organisation for 2.7 years, this minimised the long-term impact of the small differences in salary increases.
However, HR experts have also pointed out that there could be other factors that would cause these discrepancies other than gender and race discrimination.
If two employees got the same high performance rating but one made more in base pay than the other, the employee who started out with the smaller salary would get the bigger bonus, Jason Kovac, compensation practice leader at consultancy WorldatWork, told the website Workforce Management.