This study helps to fill a significant gap in the literature on organizations and inequality by investigating the central role of merit-based reward systems in shaping gender and racial disparities in wages and promotions. The author develops and tests a set of propositions isolating processes of performance-reward bias, whereby women and minorities receive less compensation than white men with equal scores on performance evaluations. Using personnel data from a large service organization, the author empirically establishes the existence of this bias and shows that gender, race, and nationality differences continue to affect salary growth after performance ratings are taken into account, ceteris paribus. This finding demonstrates a critical challenge faced by the many contemporary employers who adopt merit-based practices and policies. Although these policies are often adopted in the hope of motivating employees and ensuring meritocracy, policies with limited transparency and accountability can actually increase ascriptive bias and reduce equity in the workplace.