INDIANA — Nepotism is increasingly being identified as a quiet but powerful force behind wage inequality in both large corporations and small businesses, according to workplace experts. As demand for pay transparency grows, the role of family connections in securing higher salaries and faster promotions is facing new scrutiny.
Nepotism is defined as the practice of favoring relatives, friends, or associates, often by giving them jobs or special treatment. According to recent research, this practice has several key impacts on workplace equity and the wage gap.
The Data on Pay and Promotions
Research from Harvard’s Opportunity Insights highlights the extent of the issue. Opportunity Insights is a non-partisan, not-for-profit organization based at Harvard University and directed by Raj Chetty, John Friedman, and Nathaniel Hendren. They conduct scientific research using “big data” on how to improve upward mobility and work collaboratively with local stakeholders to translate these research findings into policy change. They also train the next generation of social scientists and practitioners to improve opportunities for all. Nearly one-third of Americans work at a parent’s firm before the age of 30, a phenomenon that is 200 times more likely than chance. These individuals earn, on average, 20% more than they would otherwise.
This practice disproportionately benefits white men from wealthy families, and it accounts for approximately 10% of the early gender pay gap and 4% of the racial income gap.
Sam Taylor, a business analyst at LLC.org, notes that this favoritism has a ripple effect beyond just income. “When someone gets a raise or promotion because of their last name instead of their work, it sends the wrong message,” Taylor said. “It’s not just unfair because it can also cost companies in lost talent, lower productivity, and broken trust.”
Data also shows that family-linked employees are often promoted faster, sometimes bypassing standard performance reviews. This can lead to pay compression, where less experienced, connected hires start at salaries equal to or even higher than seasoned staff.
Steps Companies Can Take
Experts say that companies must take proactive steps to avoid what they call the “nepotism pay trap.” Taylor recommends several strategies:
- Adopt Transparent Pay Bands: Publish salary ranges for every role to create clear expectations and reduce pay disparities.
- Standardize Performance Reviews: Tie raises and promotions to measurable outcomes rather than personal connections.
- Implement Anti-Nepotism Policies: Establish clear rules, especially for hiring and promotion decisions, to prevent favoritism.
- Audit Pay Practices Annually: Regularly review compensation data to identify and address any patterns tied to family or personal connections.
- Promote Blind Screening: Remove identifying details like names from job applications to reduce unconscious bias.
“Employees today, especially younger generations, are more vocal about pay equity,” Taylor added. “Companies that fail to address nepotism risk damaging their employer brand and struggling to attract top talent. Transparency, accountability, and clear policies are no longer optional; they’re essential.”
