Peer Bargaining and Productivity in Teams: Gender and the Inequitable Division of Pay

Problem description: A recent trend in personnel operations is to reduce hierarchy and allow employee teams to self-manage tasks, responsibilities, and rewards. Yet, we know little about how this arrangement relates to worker productivity and fairness. Academic/practical relevance: We provide the first firm-based evidence that when service teams are allowed to allocate compensation internally, the ensuing peer-bargaining process can generate inequitable outcomes for women. Methodology: We demonstrate this using fixed-effect models to identify productivity and peer-bargaining traits in 932 workers at 32 large Chinese beauty salons. We measure individual productivity through service and prepaid card sales and measure bargaining through the division of team-based commissions. We also build a parsimonious bargaining model to explain our empirical results. Results: Although productivity and bargaining outcomes are positively correlated, female workers consistently receive bargaining outcomes below their productivity level, whereas men are consistently overcompensated. Importantly, we provide evidence that our results can only be explained by a combination of higher prosociality and lower bargaining power in women. We also demonstrate that the resulting inequity is positively correlated with shorter tenure. Managerial implications: Our findings provide unique organizational evidence on how bargaining among peers relates to productivity in service operations. We show that the discriminatory social dynamics observed throughout society are evident in operational designs that delegate decision rights to teams and that the magnitude in these systems is at least as large as that observed in traditional hierarchical pay systems. Managers must anticipate and mitigate this gender-based inequity because it is in and of itself an operational performance issue, and because of the myriad of productivity, retention, and ethical implications that can result from peer-based bargaining.