Why Are Women Dropping Off the Corporate Ladder?

In reality, it’s almost as if there are two ladders. The one for men has nice, level rungs and good footings, allowing a safe and predictable passage to the top. The one for women looks more like a rock-climbing route, where the handholds get smaller and the exposure more treacherous with every vertical foot gained. Labor statistics bear this out. According to McKinsey & Company’s 2019 report “Women in the Workplace,” women hold nearly half of the entry-level positions in many industries. But at every stage of the corporate ladder, from the entry-level to the C-suite, four to 10 percent of women disappear, leaving the executive level composed of only 21 percent women.

“The question is why,” says Lauren Lu, an associate professor of business administration and a Daniel R. Revers T’89 Faculty Fellow.

In a new working paper, Lu gets at part of the answer by studying personnel and sales data at a retail sportswear firm in China. In that context, she finds that on average, women were assigned to manage the stores with lower sales potential than men on average. This then skews their personal performance downward, making them earn less bonus and less likely to receive a promotion or a pay raise.

The gender gap in upper management is of course nothing new, and there have been plenty of anecdotal explanations offered for it, such as women’s desire to devote more time to child-rearing. The McKinsey report negates other easy explanations, finding that women leave jobs at every career stage at a rate similar to men, and that women are as likely as men to ask for raises and promotions. Usually, this is where social science steps in with research, but there hasn’t been a systematic study of the challenges women face as they climb the corporate ladder.

The academic literature has focused on gender disparities of individual workers such as professors, doctors, and lawyers, and on executives in the C-suite or on corporate boards. What’s missing is a portrait of middle managers. Lu came across a rich data set from a Chinese retail sportswear firm, and the firm agreed to let her use it to explore the performance of the firm’s frontline store managers.

The gender gap at the firm Lu studies is even more exaggerated than the gap in the broader economy. Seventy-two percent of the firm’s sales clerks are women, and roughly the same percentage of store managers are women, too. But the company has almost no women at the top level. The exact causality is hard to draw out because the ability and effort of individual managers is not directly observed by researchers. What Lu can observe is the managers’ performance measured in terms of store sales, and she finds that stores with male managers generate 34.4 percent higher sales than stores with female managers. Surprisingly, she finds no discernible difference in the measurable abilities between male and female managers that can be attributed to the performance gap. They both have similar individual sales numbers (store managers are also salespeople), and women, as it turns out, manage the turnover of the sales clerks in their stores better than men.

Differential preferences are also not the cause. The firm claims that men leave low sales stores in search of higher compensation, since their pay is linked to sales. In this picture, women are less aggressive, taking what they are assigned and sticking with it. “But we did a data-driven estimation to model this gender-specific turnover rate, and the data doesn’t support what the firm told us,” Lu says. If the firm assigned stores equitably between men and women, then women would be assigned 72 percent of the high-sales-potential stores. The actual percentage of high-sales-potential stores assigned to women was much lower—44.5 percent. “The data tell me the company assigned better stores to men,” Lu says. “What has caused the inequitable store assignment? We don’t have direct evidence from our data to prove causality.” However, during her interviews with the company, some managers acknowledged that although there might not be systematic bias against women in the store assignment process, it might be socially easier for male store managers and clerks to build connections and rapport with those male bosses in the upper management, thereby giving them an edge in the store assignment process.

It’s tempting to dismiss store assignment inequity as one more inevitable vicissitude of the workplace. But that’s not true. Assignments at work are like precious resources, and they can dictate an employee’s career potential. At tech firms, the resource could be the number of engineers working on the project you are leading. At a hotel company, the resource could be the location or size of the hotel you get to manage. “If these resource assignments are not distributed equitably, and if your promotion and compensation decisions are purely based on performance measures that highly depend on allocated resources, then you will have an inequitable distribution of women and men in higher management,” Lu explains. This is the mechanism she sees at work in her own study of the sportswear firm.

To combat this resource allocation inequity, Lu’s paper offers a formula to create a Resource Inequity Index (RII), which can be adapted to many organizational settings and calculated based on readily available internal data.

“Inequity in resource allocation is hindering women from climbing the corporate ladder,” Lu concludes. “But this is not unavoidable, because we give managers a tool to identify inequity in their own organization.”