Selling Women Short: Gender and Money on Wall Street
by Louise Marie Roth
Princeton University Press, 2006

Former Harvard President Larry Summers set the pundits and "blogosphere" howling two years ago, when he regaled a diversity conference with his theories about why women weren't cracking the top ranks in academia. His allusions to differing intellectual firepower in math and science inspired fainting spells, but I've always thought it was his "high-powered job hypothesis" that deserved the most attention: The most prestigious careers, he said, be they in law, academia, medicine or business, require complete devotion during your early adult years in order to get anywhere. Since women are less likely than men to sacrifice personal and family time for a job, one will not see them at the highest levels in these fields. Women, in fact, have chosen to earn and accomplish less.

Louise Marie Roth's new book tests the evidence for this theory in the financial sector. Roth, an assistant professor of sociology at the University of Arizona, surveyed young Wall Street types who earned MBAs between 1991 and 1993, and followed the first 6-8 years of their subsequent careers. During this time, the American stock market enjoyed one of its best bull runs in history, and financial sector compensation soared through the roof. Wall Street was desperate for talent; opportunities abounded. In addition, coming off a few discrimination and sexual harassment lawsuits, Wall Street was talking a good game about changing the culture. Roth tracked earnings, workforce participation and advancement, then followed up with qualitative interviews of her subjects.

The results of her survey are disconcerting for those of us who generally trust the free market to end discrimination. In theory, a talent-driven market should be gender and color blind. After all, if someone's making you money, why care what she looks like? Wall Street also prides itself on being a meritocracy. People take home big bonuses when they make big bucks for their firms. Making big bucks for your firm is a very clear metric; in theory, things like face time and being part of an old-boy network shouldn't matter at all.

The results of her survey are disconcerting for those of us who generally trust the free market to end discrimination.

Yet Roth found that they did. For starters, she learned, compensation on Wall Street is rarely based solely on how much money one individual brings in. Wall Street types work in teams; being on a profitable team will earn you a big bonus. Unfortunately, teams in her survey rarely shared, say, compatible areas of expertise. Instead, they tended to form around shared social characteristics—like all being guys from the south who played sports and enjoyed strip clubs in their spare time. Women reported being systematically pushed toward more "female-friendly" teams and areas of their firms. These areas, like equity research and public finance, tended to feature lower compensation. Perhaps that's because they didn't generate as much fee revenue from clients, perhaps it's because they were dominated by women, or perhaps it is because these areas lack social capital, ties to the firm higher-ups. Regardless, such assignments lowered women's compensation. 

Firms also systematically assigned women to work with women-owned business clients. This makes perfect sense (minority Wall Street workers also reported being assigned to minority-owned business clients; higher-ups assumed this would make the clients feel more comfortable). However, since women-owned and minority-owned businesses tend to be less capitalized than other businesses, these clients were less lucrative, which led to lower bonuses. In addition, Roth reports, much of the average Wall Street bonus is determined by "360 degree" feedback from co-workers. Roth found that, systematically, people gave higher performance reviews to people who looked like them. Since men continued to dominate Wall Street through the 1990's, men received better reviews.

But perhaps, per Larry Summers's high-powered job hypothesis, women were also choosing to opt out of Wall Street's long hours for family responsibilities, and thus choosing to reduce their earnings? Roth debunks this idea. Childless women on Wall Street actually worked slightly longer hours than fathers did during the 1990s. Yet fathers in her study earned an average of $590,625, while childless women earned $356,944. Mothers did not work substantially fewer hours than either group, yet their average earnings were $314,357 (childless men earned $482,857). Having children tracked higher earnings for men; having children tracked lower earnings for women, perhaps because it made people perceive them as less serious and "available" irrespective of hours worked. Women who did try to trim their hours reported receiving negative performance reviews as a result, even when they were producing the same amount of business as before. The face-time culture lived on Wall Street during the 1990's, despite protests to the contrary. 

Of course, most Americans would be thrilled to be "discriminated against" to the tune of $314,357 a year. Broadly, American women who struggle to find and afford quality day care will not be sympathetic to the struggles of women who can afford live-in nannies, maids and other household help on their salaries. Caught up in her tale of Wall Street injustice, Roth does not spend much time pondering this larger question of what is "fair." Her prose is also stiff for a subject that inspires so much passion; I found myself skipping to the charts, which provided more telling evidence than the long excerpts from her interviews on people's perceptions.

But Selling Women Short is still good food for thought about why gender inequality might persist a generation after women started achieving near parity in graduate and professional schools. Fortunately, even as social scientists like Roth are documenting discrimination in the professions, ambitious women seem to be taking their own routes around the glass ceiling. The number of women-owned businesses is rising at twice the rate of firms generally. Perhaps young women with great business credentials are telling Wall Street recruiters that they would prefer to run their own shows. Discrimination may not be good for the economy, but entrepreneurship is. Hopefully Roth's next book will look at the more favorable economics of women who go that route—which is certainly a choice, even if earning less on Wall Street is not.

Laura Vanderkam is the author of the forthcoming Grindhopping: Build a Rewarding Career without Paying Your Dues. She lives in New York City.

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