JOURNAL OF BUSINESS AND PSYCHOLOGY

Volume 11, No. 3, Spring 1997

FACTORS INFLUENCING THE PROBABILITY

OF EMPLOYEE PROMOTIONS:
A COMPARATIVE ANAI,YSIS OF
HUMAN CAPITAL, ORGANIZATION
SCREENING AND GENDER/RACE
DISCRIMINATION THEORIES
John E. Sheridan
The University of Alabama at Birmingham

John W. Slocum, Jr.

Southern Methodist University
Richard Buda
Hofstra University

ABSTRACT" This study examines the effects that a manager's formal education,
on-the-job training, race and gender had on the probability of being promoted
from different jobs during his or her career in a company. Having a bachelor's
degree with a major in business or engineering had significant screening effects
on the probability of being promoted. The education screening was much stron-
ger for low performing managers than for high performers. There was no evi-
dence of gender or race discrimination effects. The importance of determining
screening variables is discussed.

INTRODUCTION

P r o m o t i o n s a r e v e r y i m p o r t a n t to o r g a n i z a t i o n s a n d t h e i r e m -
ployees. O r g a n i z a t i o n s r e l y on i n t e r n a l p r o m o t i o n s to fill m a n y o f t h e i r

Support for this research was provided by the participating company and the Cox
School of Business, Southern Methodist University. The authors acknowledge the helpful
comments on earlier drafts of this manuscript by Professors Joan Brett, Jack Brittain,
Ellen Jackofsky, Barbara Lawrence, and Robin Pinkley.
Address correspondence to Richard Buda, Assistant Professor of Management,
Hofstra University, Department of Management and General Business, 134 Hofstra Uni-
versity, Hempstead, NY 11550-1090.

373 9 1997 Human Sciences Press, Inc.

374 JOURNAL OF BUSINESSAND PSYCHOLOGY

m a n a g e m e n t positions. Promotions also provide direct economic and

psychological reinforcement for employees who are promoted. It is gen-
erally recognized that job performance is a key factor in determining
which employees are selected for promotions and when those promo-
tions occur. Prior research indicates that besides performance, the em-
ployee's educational attainments, on-the-job training and demographic
characteristics also affect upward mobility (Markham, Harlan & Hack-
ett, 1987). This paper examines the effects that these variables have
on promotion rates beyond that attributed to the employee's job perfor-
mance.
There are three explanations of why factors other than job perfor-
mance influence promotion rates. Human capital theory argues that an
employee's education increases his or her skills, which in t u r n enhances
future job performance. The human capital theory is based on supply-
side economics (Strober, 1990). Individuals invest in their education in
expectation that their organization will utilize their potential with a
faster career path.
Screening theories (Rosenbaum, 1984) suggest that educational at-
tainments influence promotions as a result of demand-side economics.
These theories argue that managers find it very cosily to obtain accu-
rate information about an employee's potential value to the organiza-
tion. In this situation, it may be economically efficient for decision
makers to assume that formal education attainments signal future suc-
cess. Higher education influences promotions because decision makers
use education as a screen to hire and place better educated employees
into fast-track careers (Beehr, Taber & Walsh, 1980).
Credentialist theory (Thurow, 1972) proposes a different demand-
side explanation of the relationship between education and mobility.
Thurow argued that formal educational attainments are viewed as evi-
dence of trainability. Decision makers screen employees based on their
education for selection into on-the-job training programs. It is the
amount and kind of training provided on the job that enhances an em-
ployee's performance, rather than the formal education achieved prior to
employment. Those employees who receive extensive on-the-job train-
ing, therefore, achieve faster promotions than those not having similar
training opportunities.
Theoretical arguments for race and gender effects on promotions
can also be grounded in h u m a n capital theory (Strober, 1990). H u m a n
capital theory contends that variation in upward mobility is largely at-
tributed to differences in the quantity and quality of the educational
opportunities available to women and minority groups. The most ob-
vious alternative explanation for race and gender effects is t h a t discrim-
ination exists in promotion decisions. Strober (1990) and Morrison and
Von Glinow (1990) indicated that discrimination could be manifested by
 JOHN E. SHERIDAN,JOHN W. SLOCUM,JR., AND RICHARDBUDA 375

slowing the promotion rates of minority and/or female employees or by

creating "glass ceilings" as barriers to upward mobility.

Hypotheses
Each theory suggests that education, training and gender/race have
significant effects on promotion rates, but for different reasons. Screen-
ing theory argues that education is used as a selection/placement crite-
ria and influences promotion rates beyond any influence that can be
attributed to job performance. Support for the screening theory can,
therefore, be inferred by acceptance of Hypothesis 1, while h u m a n capi-
tal theory would be supported by the rejection of Hypothesis 1. Creden-
tialist theory suggests that on-the-job training, rather than formal edu-
cation, influences promotion rates. Support for the credentialist theory
can be inferred by acceptance of Hypothesis 2. Discrimination theories
suggest that the employee's race and/or gender influence promotion
rates after accounting for performance, education and on-the-job train-
ing. Support for the discrimination theories can be inferred by accep-
tance of Hypothesis 3.

Hypothesis 1. The employee's formal education attainments will

have significant effects on promotion rates beyond the influence at-
tributed to his or her job performance.
Hypothesis 2. On-the-job training will have a significant effect on
the promotion rates beyond the influence attributed to job perfor-
mance and formal education.
Hypothesis 3. The employee's race and gender will have significant
effects on the promotion rates beyond the influence attributed to his
or her job performance, formal education and on-the-job training.

METHOD

Sample
This study represents a secondary analysis of data originally re-
ported by Sheridan, Slocum, Buda and Thompson (1990). New data
were collected from company files to record the educational background
and demographic characteristics of 338 managers, as well as an index of
their past job performance at various points during their career in the
company. Promotions were identified as career moves made to a higher
job level. A total of 148 managers were never promoted during the ten-
year study period, 120 were promoted once, 50 were promoted twice, 16
were promoted three times and 3 were promoted four times and 1 man-
ager was promoted five times.
376 JOURNAL OF BUSINESS AND PSYCHOLOGY

Data Analysis
Survival analysis was used to test the three hypotheses (Peters &
Sheridan, 1988). The survival models provide actuarial estimates of the
survival and hazard rates for promotions. The survival rate indicates
the portion of employees who have not been promoted after reaching a
particular job tenure, measured from the first day they started each job
held. The hazard rate function describes how the probability of promo-
tions changes with increasing tenure. The hazard rate estimates the
probability of employees being promoted during a particular tenure
month, given that they had not been promoted prior to the beginning of
that month. Cox's (1972) proportional hazards model was used to test
the effects of job performance, education, on-the-job training and gender/
race on promotion hazard rates. The significance of each variable was
tested by examining the chi-square difference in the cumulative log-like-
lihood value added by each variable (Harrell, 1990).

Measures
The manager's formal educational attainments were measured by
four variables: undergraduate degree, graduate degree, undergraduate
major and the prestige of the undergraduate university. The company's
records indicated that 75 percent of the managers had completed their
bachelor's degrees (Bachelor's = 1) at the start of their careers in the
company. A total of 15 percent had also completed graduate degrees,
(Graduate = 1). It is likely that some managers completed a degree
after the start of their career in the company. However, these were not
uniformly recorded in the company's personnel records and represent a
potential measurement error. Since the research focused on the promo-
tion effects of having a professional degree, the college majors were
coded as a contrast effect. The professional effect was scored as + 1 for
engineering and business majors, - 1 for liberal arts and science majors
and 0 for those without a bachelor's degree.
The undergraduate degrees were awarded by 65 different univer-
sities. The prestige of those universities was assessed by a prestige in-
dex used by Rosenbaum's (1984). The university prestige rankings re-
mained relatively stable over the ten-year study period and had high
multi-method reliability.
Company records indicated that 60 managers in the study sample
had participated in an extensive fourteen-month on-the-job training pro-
gram shortly after their hire date. Managers were selected into the
training program after interviews with senior managers and members of
the h u m a n resources department. Other managers did not participate in
the on-the-job training program. One hundred were hired directly from
 JOHN E. SHERIDAN,JOHN W. SLOCUM,JR., AND RICHARDBUDA 377

outside the company to fill a vacant entry level management position.

Fifty-four were promoted to an entry level position from a non-manage-
ment job in the company. On-the-job training was coded as + 1 for those
who completed the fourteen-month trainee program and 0 for those who
started their first management job without completing the trainee pro-
gram.
The manager's gender and race were recorded as possible discrimi-
nation factors. Company records indicated that 29 percent of the sample
were women (Gender = 1) and 71 percent men (Gender = 0). A total of
13 percent were an EEOC minority status (Minority = 1).
The manager's salary progression was utilized as a surrogate mea-
sure of Ms/her past performance. Merit pay increases were given across
all departments to recognize the manager's job performance over a pe-
riod of time. Merit pay increases for each manager had to be justified by
his/her immediate supervisor in writing and by a verbal presentation to
the human resource department.
The manager's salary progression was recorded as the percentage
increase from the starting salary earned in his/her entry level job to his/
her present salary at the start of each job they held. The manager's
salary at the end of the study period was used as the last salary mea-
sure for the job currently held. To control for the effects of varying infla-
tion rates on salary progression, over a decade, the salaries recorded
during different years were multiplied by the compounded annual infla-
tion rates to arrive at adjusted salaries. A merit index of the manager's
relative job performance was computed by dividing his/her actual per-
centage increase in salary by the percentage increase in the inflation
adjusted salaries. This distribution of performance indices ranged from
1.00 to 1.87, with the median performance index being 1.11. Higher ra-
tios, therefore, indicate that a manager had received larger merit salary
increases than the inflation rate.

RESULTS

The pattern of significant correlations tends to support the creden-

tialist argument that formal educational attainments were used as
screening criteria to select individuals for on-the-job training. Managers
having a bachelor's degree and those with a professional major were
more likely to participate in the on-the-job training program than those
lacking these education credentials.
Table 1 reports the results of the proportional hazards model used
to estimate the posited effects on the promotion hazard rates. The model
explained the highest portion of variance in the hazard rates for the first
job (D = .352). Substantially less variance was explained in promotions
378 JOURNAL OF BUSINESS AND PSYCHOLOGY

Table 1
Proportional Hazards Model for Promotions

Promotion from Promotion from Promotion from

First Job Held Second Job Held Third or More Jobs Held
I n d e p e n d e n t Variables X2 Da X2 D • D

Performance Ratio 11.99"* 2.25 .10

Bachelors Degree 7.40** .48 3.37*
G r a d u a t e Degree .25 1.10 .12
Professional Major 4.44** 3.01" .16
University Prestige 2.02 .25 1.07
On-the-job Training 2.49* .93 1.82
Gender .35 .10 .00
Race .23 .15 .23

Total Model .352** .112 .146

*p ---.05
**p ---.01
aD value is similar to R 2 in regression models. D = C / ( n - P + C )
where: C = Chi Square, n = sample size and P = n u m b e r of variables (Hintze,
1989)

from the second job (D = .112) and later jobs held (D = .146). Job per-
formance had the strongest influence on promotions from the first job
but the effect was smaller in subsequent jobs. The findings support Hy-
pothesis 1. Education variables had significant effects on the promotion
hazard rates from each job held, after the effects of job performance had
been accounted for. The results failed to support Hypothesis 2. On-the-
job training had a short run influence on promotion rates only in the
first job, after the formal education effects had been accounted for. The
effects of on-the-job training diminished greatly in subsequent jobs.
Finally, the results did not support Hypothesis 3. There was no evi-
dence of discrimination effects on promotion rates. The manager's gen-
der and race did not significantly influence the promotion hazard rates
in any job held.

DISCUSSION

The findings indicate that there was a significant education screen-

ing effect on promotion rates. Having a bachelor's degree with a profes-
sional major had long lasting effects on the manager's promotion rates.
The screening effects were most evident among low performing man-
agers. Why would decision makers promote college graduates with a
 JOHN E. SHERIDAN,JOHN W. SLOCUM,JR., AND RICHARDBUDA 379

professional major at a faster rate than those who had comparable per-
formance but with different educational backgrounds?
The internal labor market theory proposed by Doeringer and Piore
(1971) provides some rationale for these screening effects. They argued
that entry level job opportunities and salaries are based on competition
with other organizations in an external labor market. Once individuals
are hired, however, promotion opportunities in the internal labor mar-
ket are based on the company's own goals and objectives. These internal
objectives determine the speed of promotions and the specific employees
who will be selected for promotion from a pool of internal candidates.
The results of this study have important implications for under-
standing upward mobility patterns. Two promotion patterns were appar-
ent in the hazard model results. First, the strength of the job perfor-
mance influence on promotion rates diminished sharply in later jobs,
while education variables had smaller but longer lasting effects on pro-
motion rates. Second, the education screening effects on promotion rates
were most evident among managers who had lower job performance.
Both patterns raise questions regarding the equity of promotion decision
processes. Is there any room for "late bloomers" in an organization? Hu-
man resource policies must assure that candidate pools include those
slow starters who may not have performed well in their first job but are
now achieving high performance on later jobs. The screening effects of
education and training experience should not completely overshadow
the performance influence in later jobs. Likewise, the decision process
should not continue to favor the education and training experiences of
those who have failed to achieve high performance. It would be inequita-
ble if highly educated employees having lower performance were pro-
moted at a faster rate than those who achieved high performance, even
though they lacked the valued education and training experiences.
These findings accentuate the importance of effectively communicating
all criteria used in promotion decisions to employees early in their ca-
reers.

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