The Double Standard in Punishing Misconduct
It is well known that there is a gender pay gap: women earn lower wages than men. Is that where the disparity in the workplace ends? In a new working paper, we document the existence of the gender punishment gap: gender differences in the punishment of undesirable activities. We study the career trajectories of more than 1.2 million men and women working in the financial advisory industry in the United States and examine how their careers evolve following misconduct. Women face more severe punishment at both the firm and industry level for engaging in misconduct. Following an incidence of misconduct, women are 20% more likely to lose their jobs and 30% less likely to find new jobs relative to their male counterparts.
The gender punishment gap is potentially alarming. If women are held to a different standard than men, this could limit the career progression of women in a well-paying human capital intensive industry. Although much of the existing research on gender discrimination has focused on wages and hiring decisions, 60% of discriminatory lawsuits involve discriminatory firings. The punishment gap is something that persists throughout one’s career. This feature makes the punishment gap costly for women and provides insight into what might drive the disparities between men and women in the workplace. Unlike initial hiring and wage decisions, the punishment gap occurs after the firm has already formed a longstanding relationship with the employee.
Our analysis covers the universe of financial advisers registered in the U.S. over the period 2005 to 2015. Currently there are 650,000 registered financial advisers in the United States. The Financial Industry Regulatory Authority (FINRA) requires that financial advisers formally disclose all customer disputes, disciplinary events, and financial matters, and FINRA makes these records publicly available on its website. Misconduct is relatively common in this industry. Our previous study shows that roughly one in twelve advisers have a past record of misconduct. Misconduct offenses include customer disputes resulting in a settlement/award, internal firm discipline, and regulatory and criminal offenses.
Male advisers are more than three times as likely to have a record of misconduct relative to female advisers. Roughly one in ten male advisers has a past record of misconduct versus one in thirty-three female advisers. This result may not be so surprising given that men are more likely to engage in crimes in general, including white collar crimes such as fraud.
What is more striking than the differences in the baseline rates of misconduct, is what happens to male and female advisers following misconduct. The table below displays the turnover in the financial advisory industry. Columns (1) and (2) of table show that in a typical year 19% of male and female advisers leave their firm. After being reprimanded for misconduct, 46% of male advisers experience an employment separation (column 3). Conversely, 55% of female advisers experience an employment separation following misconduct (column 4). The results suggest that women are 20% more likely to lose their job following misconduct.
| No Misconduct | Misconduct | |||
| Male | Female | Male | Female | |
| Remain with the Firm | 19% | 19% | 54% | 45% |
| Leave the Firm | 81% | 81% | 46% | 55% |
| Leave the Industry | 46% | 52% | 53% | 67% |
| Join a Different Firm | 54% | 48% | 47% | 33% |
The punishment gap extends beyond the firm to the industry level as well. After losing their job following misconduct, 47% of male advisers find new employment in the industry. In contrast, only 33% of female advisers find new employment in the industry after losing their job following misconduct. Overall, the results suggest that while 76% of male advisers maintain employment in the industry following misconduct, only 63% of female advisers maintain employment in the industry following misconduct.
What seems to be driving the gender punishment gap? One potential explanation is that women engage in different types of misconduct. For example, if women engage in more costly offenses or are more likely to be repeat offenders, this could explain why women face more severe punishment. However, the data suggests the exact opposite. Men are twice as likely to be repeat offenders and engage in misconduct that is 20% more costly. An alternative explanation is that the gender punishment gap is driven by differences in productivity. A firm may be less tolerant of misconduct by a financial adviser who brings in less money for the firm. An advantage of studying the financial advisory industry is that we can control for productivity differences. We find that the gender punishment gap persists even when we control for the amount of money an adviser manages and compare male and female advisers working in the same firm, in the same branch, and at the same time.
We find evidence that the gender punishment gap varies drastically across firms. Figure 1 displays dispersion in the gender punishment gap across firms, and Figure 2 displays the firms with the highest gap. We restrict our analysis to firms in which at least twenty female advisers receive misconduct disclosures such that we have enough observations for each firm to precisely measure the gender punishment gap within the firm. In terms of magnitudes, the results suggest that at the top 10 firms, in terms of the highest gender punishment gap, female advisers are roughly 10-30 percentage points (20%-60%) more likely to lose their jobs following misconduct than their male colleagues.
Figure 1: Dispersion in the gender punishment gap across firms
Figure 2: Firms with the highest gender punishment gap
We find evidence suggesting that the punishment gap is driven in part by the composition of firm management and executives. The gender punishment gap varies drastically across firms and is mitigated by the gender composition of management. At firms with no female representation at the executive/ownership level, female advisers are 42% more likely to experience a job separation following misconduct than their male colleagues. On the other hand, firms with equal representation of male and female executives/owners discipline male and female advisers at similar rates.
We document a similar punishment gap for ethnic minority advisers. African and Hispanic advisers are more likely to experience an employment separation and face worse reemployment prospects following misconduct relative to their non-minority colleagues. We again find that the punishment gap is smaller at firms with more minorities in management and executive positions. Interestingly, we find no evidence that male minority managers decrease the gender punishment gap. In other words, managers only alleviate the punishment gap within their gender or ethnic group. Collectively, our results suggest that gender and minority punishment gaps are driven by “in-group” favoritism.
Our findings provide new evidence on a potentially less-salient and costly gender gap, the gender punishment gap. The financial advisory industry is willing to give male advisers a second chance, while female advisers are cast from the industry. We find evidence that the gender punishment gap is driven by in-group favoritism. The effects of the gender punishment gap are costly, long-lasting, self-fulfilling, and may ultimately contribute to the glass ceiling faced by women in finance.