Gender gap in executive compensation: The role of female directors and CEOs

 
Women executives (iStock)
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February 23, 2012

According to a 2010 report on Fortune 500 companies, women represented only 2% of CEOs, 14% of top executives and 16% of corporate directors. Some two-thirds of such companies had at least one woman in their executive ranks, however.

A 2012 study from the University of Illinois at Urbana-Champaign, ‘The Gender Gap in Executive Compensation: The Role of Female Directors and Chief Executive Officers,” examines the relationship between female representation in compensation committees and the presence of female CEOs, and the reduction of wage disparities. Published in The Annals of the American Academy of Political and Social Science, the study analyzes a sample of 7,711 executives (of which 6% were women and 94% men) employed by 831 publicly traded U.S. firms from 1998 to 2005.

The study’s findings include:

  • “Male executives receive greater compensation than female executives, and the difference is statistically significant. In real dollar terms, men are paid $1,443,607 (in 2000 dollars) on average, while women receive $1,018,107 (in 2000 dollars) on average, or 42% less than men.”
  • Having a greater proportion of women on compensation committees was found to reduce inequality in salaries paid to women compared to their male counterparts. This increase in the representation of women was not correlated with any adverse impact on salaries paid to male executives.
  • Firms with one woman on the compensation board saw average total compensation (including annual salary, bonuses, stock options, and other long-term incentive pay) for women increase by $302,000, a 34% increase. Adding another woman to the compensation committee was correlated with yet another 38% jump in salaries for women, to an overall average of $1,635,000. Firms with at least two women on compensation committees (which is usually comprised of four members) removed salary disparities altogether.
  • An overwhelming 81% of the firms in the sample had no female representation in their compensation committees, while only 10% of the firms had equal gender representation in compensation committees.
  • Among top positions, females were more likely to hold lower-ranking positions of EVP (executive vice president), SVP (senior vice president), counsel and secretary, while males usually took the positions of CEO (chief executive officer), COO (chief operating officer), president and chair.
  • Overall, the presence of female CEOs was not associated with a reduction in wage discrimination faced by other women executives in the same company.

The author concludes, “In the current study, I also hypothesized that the presence of a female top decision-maker contributes to the career success of other female managers working under her through the development of actual mentorship relationships or by providing a positive role model that weakens stereotypical views of women’s leadership and strengthens women’s professional self-image. Such benefits of a female leader at the very top should lead to a narrowing of the gender gap in pay. However, the data do not support this hypothesis.”

To explore these dynamics further, the author also suggests comparative research on European countries, noting, “In 2005, Norway required that the boards of publicly held companies be at least 40% women, and France and Spain recently committed to the same quota.”

Tags: women and work

 

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Citation: Shin. Taekjin. "The Gender Gap in Executive Compensation: The Role of Female Directors and Chief Executive Officers." The ANNALS of the American Academy of Political and Social Science, January 2012, Vol. 639, No. 1. doi: 10.1177/0002716211421119 258-278.