Selling Women Short

Gender and Money on Wall Street

Louise Marie Roth

• Publisher: Princeton University Press
• Year: 2011
• Print ISBN: 9780691166728, 9780691126432
• eBook ISBN: 9781400840793
• Topic: Business
• Subtopic: Workplace Culture
• Index: Business

Rocked by a flurry of high-profile sex discrimination lawsuits in the 1990s, Wall Street was supposed to have cleaned up its act. It hasn't. Selling Women Short is a powerful new indictment of how America's financial capital has swept enduring discriminatory practices under the rug.


Wall Street is supposed to be a citadel of pure economics, paying for performance and evaluating performance objectively. People with similar qualifications and performance should receive similar pay, regardless of gender. They don't. Comparing the experiences of men and women who began their careers on Wall Street in the late 1990s, Louise Roth finds not only that women earn an average of 29 percent less but also that they are shunted into less lucrative career paths, are not promoted, and are denied the best clients.



Selling Women Short reveals the subtle structural discrimination that occurs when the unconscious biases of managers, coworkers, and clients influence performance evaluations, work distribution, and pay. In their own words, Wall Street workers describe how factors such as the preference to associate with those of the same gender contribute to systematic inequality.


Revealing how the very systems that Wall Street established ostensibly to combat discrimination promote inequality, Selling Women Short closes with Roth's frank advice on how to tackle the problem, from introducing more tangible performance criteria to curbing gender-stereotypical client entertaining activities. Above all, firms could stop pretending that market forces lead to fair and unbiased outcomes. They don't.

Chapter 1

THE PLAYING FIELD

Wall Street in the 1990s

Wall Street investment houses are the pinnacle of the securities industry, which mediates the flow of finance capital from investors to corporations, tax-exempt organizations, and other corporate entities like governments. Wall Street is supposedly “a citadel of pure economics, where pay for performance would seem to be the ruling ethic.”¹ The compensation system on Wall Street is a rational incentive structure in which bonuses comprise the majority of workers’ pay and are supposed to reflect the amount of revenue they generate for the firm—simple enough. Bonus structures provide incentives to invest effort, skill, and time in the pursuit of firm profits, while inequality that is not based on merit contradicts these incentives and discourages worker efficiency.

Market conditions at the end of the millennium should have encouraged greater equality. Wall Street experienced its greatest economic boom in history in the 1990s, so that securities firms had to compete for qualified employees and pay them well. Economic theories suggest that this type of competition among firms for skilled labor should eliminate inequality that is not based on merit, because discrimination is expensive if it is not relevant to performance—firms would drive away qualified workers and lose money in fulfilling an irrational impulse.²

Despite Wall Street’s rationality and the boom market of the late 1990s, we’re still confronted by systematic, if subtle, discrimination. We’ll uncover how inequality can persist even under market conditions that should reduce or eliminate it and work to understand how structural discrimination may be rationalized and institutionalized.

Wall Street in the 1990s

The late 1990s were Wall Street’s longest bull market. In 1995 the Dow Jones Industrial Average hit 4,000 and kept climbing. Before the year 2000 it had crossed the 11,000-point mark.³ The firms that provided finance capital gained global power, and more and more investors entered the markets for stocks and mutual funds. Wall Street’s revenues, number of employees, and professional compensation all swelled.

The securities industry is highly concentrated; the ten largest firms pulled in over half of the 1997 broker-dealer revenue from the NYSE. The top 25 firms accounted for 74 percent of the NYSE’s revenue and 79 percent of its capital.⁴ The financiers I interviewed worked for the biggest players on the Street: Morgan Stanley Dean Witter, Goldman Sachs, Merrill Lynch, Lehman Brothers, Salomon Brothers, Smith Barney (the latter two merged in 1997 to form Salomon Smith Barney), Credit Suisse First Boston, J. P. Morgan, Bear Stearns, and Donaldson Lufkin and Jenrette (DLJ).⁵

I asked these workers about their compensation in 1997, a year when the U.S. securities industry gross of $145 billion represented approximately 2 percent of the total U.S. GNP of $8.1 trillion and profits hit a record high of $12.5 billion. On the buy side, revenues from mutual funds and asset management also hit record highs of $10 billion and $5 billion, respectively.⁶ The firms that earned the most were led by the big three in the top tier—Merrill Lynch, Goldman Sachs, and Morgan Stanley Dean Witter.⁷ These firms were followed by second-tier firms of Salomon Smith Barney, DLJ, Lehman Brothers, Credit Suisse First Boston, and J. P. Morgan in positions four through eight.

In 1996 and 1997, professional compensation on Wall Street also hit all-time record highs, and industry employment was rising.⁸ By the end of 1997, employment in the U.S. securities industry reached 612,800, representing an 8.1 percent increase since the end of 1996, and a 36 percent increase over five years.⁹ The hottest industry for mergers and acquisitions in 1997 was financial services, in a trend toward consolidation into megabanks.¹⁰ The merger wave caused the share prices of publicly held financial firms to skyrocket. By all financial measures, securities firms were on an upward trajectory.

The 1990s also marked an increase in the number and proportion of women entering the securities industry, as well as the promotion to senior positions of some of the pioneers who broke gender barriers in the 1970s. Goldman Sachs named Abby Joseph Cohen a partner in 1998, in its last partnership selection before the company went public in 1999.¹¹ Wall Street firms are reluctant to dispense statistics on the characteristics of their workers, but many estimated that Wall Street firms hired women as approximately 15 to 20 percent of their incoming associate classes in the 1990s, an increase over earlier decades although still far from equality at the entry level—a point that has not gone unnoticed in the high-profile sex discrimination suits against the industry.¹²

While the industry as a whole was skyrocketing, securities firms (and professionals) differed in their relative success. Mergers displaced some finance professionals in 1997 and early 1998, and some force-cutting occurred.¹³ J. P. Morgan announced in February 1998 that it would dismiss approximately 5 percent of its workforce, or 700 people. After the merger of Salomon Smith Barney with Citicorp to form Citigroup in 1997, the megabank announced layoff plans with the intention of cutting 6 percent of its workforce, or 10,400 jobs. Other Wall Street firms also prepared for layoffs in the late 1990s, even as the stock market continued to climb. In this context, the MBAs of the early 1990s shaped their careers in the securities industry.

Success and Failure on Wall Street

As the markets soared, many Wall Street careers were on a clear path to success and there were abundant opportunities to advance. Deal volume, underwriting and commission revenues, salaries, and the size of the workforce all skyrocketed to record highs.¹⁴ The demand for financial services was increasing, especially in hot areas of investment banking and trading like high yield, derivatives, and mergers and acquisitions.¹⁵ Wall Street firms also faced heightened competition from commercial banks and foreign underwriters who took chunks of traditional Wall Street business and hired away many of their talented workers by offering large guarantees and signing bonuses.¹⁶ The fact that firms competed for skilled employees opened up workers’ opportunities in the industry and contributed to escalating bonus packages.

But not everyone benefited equally from Wall Street’s remarkable growth cycle in the 1990s. Even in this climate of abundance, success was a relative concept. Most men and women who stayed in a top firm and an area like corporate finance, sales and trading, or equity research were successful because compensation and rank increased over time.¹⁷ But others were derailed from the path to success despite the favorable market conditions on Wall Street, as they encountered layoffs, downturns in particular market niches, involuntary transfers, difficult managers, or hostile work environments.¹⁸ Thirty-nine percent of those interviewed (56 percent of the men and 27 percent of the women) were highly successful during the long bull market, exceeding the average pay for their area and cohort. But 61 percent (44 percent of the men and 73 percent of the women) were less successful despite the favorable market conditions on Wall Street. Many MBAs who entered the securities industry immediately before its longest bull market encountered unexpected opportunities for success, but others confronted obstacles to their career goals. Consider, for example, the diverse paths taken by the following four men drawn from the larger group interviewed for this study.

The Men

Roger¹⁹ grew up in the Northeast in an upper-middle-class family. His father was a doctor and his mother was a homemaker. He had recently married another investment banker who was working on her MBA, and he had no children. Roger attended a prestigious private university where he obtained a very high GPA. He also had a high score on the GMAT. Between graduating from college and pursuing an MBA, Roger was a financial analyst in mergers and acquisitions (M&A) at a large investment bank. Financial analyst positions are typically filled by young college graduates and are the most time-consuming and lowest-ranked positions in the investment banking world. Roger entered the MBA program to take a break from the stress of being an analyst, and expected to use the opportunity to find a career in another industry. He said, “I needed to take two years off. I was burnt out after being an analyst. I needed it to release tension. Doing an MBA is really easy compared to being an analyst. Being an analyst is very stressful.” At the end of his MBA program he did not find anything more appealing than finance and was in a good position to obtain Wall Street offers. Instead of returning to the large firm where he had previously worked, he accepted a job in a smaller firm.

Roger changed groups within his firm once. He was offered a position in M&A that fit with his previous experience and existing set of skills and he wanted to leave his first position, which involved a lot of business-related travel.

I was sick of flying to South America all week and then working weekends. Then they hired a bunch of people from [a commercial bank], and I didn’t want to work with an unknown quantity. So I was asked to join the M&A group that was in formation, and I [did].

He was promoted to vice president after four years as an associate, in accordance with the promotion time line of the industry. Roger strongly believed that Wall Street operated as a meritocracy and was confident that his performance was exceptional. When asked how he ranked among his peers, he said, “Within the firm, I’m in the top 1 percent. . . . Because I’m smart, I work hard, and I do a great job.” In 1997, four years after graduating from business school, he earned over $600,000, and he said that he loved his job so much that he would do it for half the pay. Roger followed a linear career path, amassing experience on Wall Street before obtaining his MBA. When he reentered the industry, the positive economic climate propelled him toward even greater success and satisfaction. What he attributed to his own merits was undoubtedly the result of his skills and experience combined with favorable market conditions.

Edward differed from Roger in his experience before the MBA but also encountered growing opportunities on Wall Street. He grew up in the suburban South in an upper-middle-class family with a professional father and a homemaker mother. He attended a large public university for his bachelor’s degree and graduated with a high GPA. He then worked as an accountant for four years prior to obtaining his MBA. During that time he married. He had two small children at the time of the interview (two and six years old), and his wife was a homemaker.

Edward decided to get an MBA to change careers. “I wanted a change. I had good training, but I didn’t want to pursue it as a lifelong career. I was tired of being a CPA. Getting an MBA was an opportunity to change careers. It allowed me to start over.” His experience as an accountant helped him understand financial analysis, but his only real Wall Street experience prior to completing the MBA degree was during the summer between his first and second years. At that time, he was a generalist in corporate finance at one of the top investment banks and discovered that he enjoyed the work.

I liked it. I did it for the summer because I didn’t understand it and thought it would be nice to leave business school with a better understanding of what happened on Wall Street. I didn’t do it because I ever thought that I would do it full time, but I thought it would be an opportunity and I probably shouldn’t waste it. After the summer I really enjoyed it. I didn’t necessarily like being at the office until 3:00 in the morning but I really enjoyed the work and I thought that another two years on Wall Street would be a good thing to have behind me.

The same firm hired him when he graduated, and he expected to work there for approximately two years but not to make a long-term commitment to Wall Street.

While the job required a tremendous commitment in terms of hours and the first year was the “most stressful” of his life, he found that he fit in well with the organizational culture and continued to enjoy the work. He worked on large transactions where he had substantial exposure to client companies with huge assets. He was promoted to vice president after four years and senior vice president after three more years, as was the norm on Wall Street. He then changed firms in 1998 when a close personal friend offered him a position of greater responsibility at a smaller firm. While he was satisfied with his original position and had earned over $1 million in 1997, he was drawn toward the opportunity to be a bigger fish in a smaller pond and to work with someone with whom he had a strong personal relationship. He entered the new firm as a managing director (MD)—a higher rank than his position at his original firm. While the smaller firm did not have the same reputation and high-prestige name as his original employer, he had developed strong client relationships and was able to bring in business. Instead of working on Wall Street for two years, as he had intended, he had a very successful seven years after the MBA.

Edward was highly satisfied with his career, despite tremendous sacrifices in his personal life. When asked about work-life balance, he said,

Initially I didn’t balance it. My son was born in my first year in New York City, as a first-year associate. It was the most stressful year of my life. . . . Sacrifices in the first few years were huge. Time away from family was [the main sacrifice]. You miss special occasions, you miss birthdays, you miss parties, you miss, miss, miss, miss, miss.

He made these sacrifices as he followed the opportunities that presented themselves, without a conscious decision that Wall Street would be his career forever or even a full understanding of what such a career would entail. These opportunities were a product of the favorable market cycle and the resources available in his first job at a prestigious firm. He was also able to follow these opportunities in part because had the support of a homemaker wife—a fact that he acknowledged had allowed him to focus on work. He was also able to maintain a clear upward trajectory because he worked in an area and firm where he fit in well with managers, peers, and clients, and where the market was booming and deals were happening. The clear trade-off that he made was to accept a lack of involvement with his children during the first few years of their lives.

As the industry entered a bull market, Roger and Edward encountered expanding opportunities and an upward compensation trajectory. They were able to take advantage of these opportunities because they were unencumbered by other draws on their time. The combination of their talent and effort with a favorable economic climate and a good fit with their firms’ cultures led to high rewards on Wall Street. But not everyone encountered the abundant and appealing opportunities that Roger and Edward did. Some men were pulled off the fast track by opportunities outside finance or by personal issues. Others were pushed out of the most lucrative jobs on Wall Street by market forces, the loss of a mentor, poor advice, or firm layoffs. In considering the next two men, contrast Edward’s choice to accept limited involvement with his children with Kevin’s experience.

Kevin grew up in a middle-class family in the suburban Northeast. His father worked in sales and marketing, and his mother was a homemaker. He attended an Ivy League college, where he obtained a high GPA. He subsequently worked as a two-year financial analyst in M&A at one of Wall Street’s most prestigious firms before entering an MBA program. When he graduated, he returned to the same firm in corporate finance. Like Roger, he returned because he had not found anything that he preferred more. The work was interesting and he enjoyed the quality of people in the firm. Because of his previous experience, Kevin was prepared for his responsibilities, although the hours were especially grueling during his first couple of years. When asked about his expectations for hours, he said,

I knew I would work a lot. If I had to quantify it, I thought I’d probably work maybe seventy hours a week, which is a lot. Which is a hell of a lot actually. It was worse. I don’t know if that’s the right number. I don’t know if I actually worked more hours than that but I think I ended up working more than I thought I would have to because it was a very bus...

Table of contents

• Cover
• Half title
• Title
• Copyright
• Dedication
• Contents
• Preface and Acknowledgments
• Introduction
• Chapter 1 The Playing Field: Wall Street in the 1990s
• Chapter 2 Pay for Performance: Wall Street’s Bonus System
• Chapter 3 A Woman’s Worth: Gender Differences in Compensation
• Chapter 4 Making the Team: Managers, Peers, and Subordinates
• Chapter 5 Bringing Clients Back In: The Impact of Client Relationships
• Chapter 6 Having It All? Workplace Culture and Work-Family Conflict
• Chapter 7 Window Dressing: Workplace Policies and Wall Street Culture
• Chapter 8 Beating the Odds: The Most Successful Women
• Chapter 9 The Myth of Meritocracy: Gender and Performance-Based Pay
• Appendix A Methodology
• Appendix B Quantitative Measures and Models
• Appendix C Interview Schedule
• Notes
• References
• Index