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Not Just a Formality: Pay System Formalization and Sex-Related Earnings Effects

INSEAD, Boulevard de Constance, Fontainebleau Cedex, 77305 France, and the Graduate School of Management, University of California, Irvine, California 92697-3125
School of Business, Clarkson University, P.O. Box 5790, Potsdam, New York 13699-5790
marta.elvira(insead.edu
grahamm(clarkson.edu

Drawing on neoclassical economic, internal labor market, and devaluation theories, we examine how the sex composition of jobs and the sex of individual workers affect earnings, depending upon the formalization of the pay type. Using personnel data for over 8,000 employees, we confirm the existence of a negative relationship between earnings and the proportion female in a job. We also find that for less-formalized pay types (cash incentive bonuses), sex-composition and individual-sex effects are larger than for more formalized pay (merit raises and base salary). Together, these findings support devaluation explanations, suggest that incentive bonuses may widen the earnings gap between women and men, and have implications for the design of pay structures in organizations.

Key Words: Sex Composition; Pay Formalization; Incentive Bonuses

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