Are Biased Performance Reviews Impacting Pay Equity?

Top performers make a disproportionate impact at your company. By one study’s estimate, high performers are 400% more productive than average employees—though this increases to 800% in highly complex occupations.

Identifying and rewarding your top performers with merit-based raises and variable pay structures can help you reward and retain them. But what if biased performance reviews lead you astray?

Performance reviews are subject to biases

A report from Textio found evidence of performance feedback bias by gender, race, ethnicity, and age. Specifically:

• Asian people get more feedback than people of any other race—25% more than white people—and Black men get the least feedback of all.
• Women, Latinx and Black workers, and workers 40 and over are less likely to receive actionable feedback than men, Asian workers, and workers under 40. For example, women over 40 receive 4.4x more feedback that’s not actionable compared to white men under 40. Black women receive 8.8x more feedback that’s not actionable. 
• Compared to men, women are more likely to report being described as collaborative, nice, opinionated, and abrasive. Meanwhile, men are more likely to report being described as confident and ambitious.
• White and Asian employees are more likely to report being described as ambitious. Black and Latinx employees are more likely to report being described as passionate, which is considered a euphemism for having a strong personality and not getting along with others.
• People under 40 report being described as ambitious more often than those age 40 and older, while people over 40 are far more likely to be called responsible and unselfish.

Biased performance reviews contribute to the wage gap

Black and Latinx employees, women, and workers over 40 are most heavily affected by performance review bias—and these same marginalized groups experience significant pay disparities. For example:

• Women earned 83 cents and Latinas earned 49 cents for every dollar white men earned in 2021.
• Black men earned 76 cents and Latinos earned 75 cents for every dollar white men earned in the first quarter of 2022.
• Wage growth stagnates for full-time workers 45-54 years of age, before declining from 55 years of age onward.

This correlation isn’t surprising, as performance reviews are often directly tied to promotions and raises. Less actionable, lower-quality feedback doesn’t give people from marginalized groups the opportunity to improve so they can advance and earn higher wages. Further, personality-based feedback leads people from marginalized groups to be perceived as less qualified and impactful, and therefore less deserving of merit-based raises and promotions.

This can lead to employee disengagement if people from marginalized groups no longer feel appreciated and stop going the extra mile to help your company reach business goals. In this sense, biased performance reviews and corresponding pay inequities can actually turn your top performers into average or underperforming employees. 

Regular compensation analyses can help you spot these issues

Make it a point to run a compensation analysis at the beginning of each review cycle to look for potential pay inequities between demographic groups. Rather than justifying disparities due to performance review scores, question them. 

Clear patterns in performance reviews by demographic is a strong indication that performance biases could be impacting pay equity. If this is the case, make a plan to address pay inequities and request the additional budget to cover this strategic adjustment during your review cycle. Prioritize these adjustments to set the floor for each employee’s compensation before other stakeholders get involved in your review cycle.

You may find biases creep back in after your initial adjustment, especially if merit-based or discretionary increases are added by other stakeholders. It’s always a smart idea to plan for an additional adjustment toward the end of your compensation review cycle, after other stakeholders make their recommendations.

You may also run a mini compensation analysis during any off-cycle compensation reviews. Wages are rising quickly, and a manager might want to offer a top performing team member an off-cycle raise to retain them. This is a good time to review compensation for other employees on that team, making sure everyone’s salary, bonus, and stock options align with your pay philosophy. 

A compensation management software like Compaas makes it easy to track and improve pay equity so you can make more informed decisions.

Final thoughts on performance reviews and pay equity

While it’s important to address pay inequities caused by biased performance reviews, your best bet is to do what you can to prevent them from occurring in the first place. Reviewing compensation changes against your strategy before they take place can help, but your team also needs to get proactive about addressing biased performance reviews so pay equity isn’t adversely affected. A more objective performance review process can help ensure you’re rewarding all top performers appropriately—and fairly—so you can engage and retain them.