Potential and the Gender Promotion Gap
Abstract: We show that the increasingly popular use of subjective assessments of employee "potential" contributes to gender gaps in promotion and pay. Using data on management-track employees from a large retail chain, we find that women receive substantially lower potential ratings despite receiving higher job performance ratings. Differences in potential ratings account for 30-50% of the gender promotion gap. Women's lower potential ratings do not appear to be based on accurate forecasts of future performance: women outperform male colleagues with the same potential ratings, both on average and conditional on promotion. Yet, even in these cases, women's subsequent potential ratings remain low, suggesting that firms persistently underestimate the potential of female employees.
