"Potential" and the Gender Promotions Gap

Abstract

We show that widely-used subjective assessments of employee "potential" contribute to gender gaps in promotion and pay. Using data on 29,809 management-track employees from a large North American retail chain, we find that women receive substantially lower potential ratings despite receiving higher job performance ratings. Differences in potential ratings account for approximately half of the gender promotion gap. Women's lower potential ratings do not appear to be based on accurate forecasts of future performance or attrition: women subsequently outperform male colleagues with the same potential ratings, both on average and on the margin of promotion. Despite this, subsequent potential ratings for women remain low, suggesting that firms persistently underestimate the potential of their female employees.

Keywords: Promotions, performance evaluations, glass ceiling, gender bias, leadership, compensation, wage differentials, role congruity theory, Peter Principle

JEL Classification: M51, J31, D84