How the gender of the CEO matters for compensation
This study examines sources of wage discrimination in instances where women and men hold the same occupational rank and position. Using data from 2,548 large, publicly traded U.S. companies for the period 1996–2011, the study tracks influences on corporate officers’ compensation. Even after taking into account such factors as firm’s stock performance, stock volatility, or return on assets, it finds the biggest predictors of corporate officers’ compensation levels is the gender and age of their CEO. Notably, male CEOs compensate male officers far better than they do female officers; women earn $46,500 less per year than their male counterparts under the tenure of a male CEO. And older male CEOs are more likely than younger male CEOs to offer larger payouts to their male officers. This study offers compelling evidence that a significant portion of the gender gap in earnings can be explained by discrimination on the part of those responsible for determining wage compensation.
Causes of the gender wage gap, where men earn more than women in labor markets, are contested. Some argue that women self-select into lower status jobs in order to accommodate their role as parents. Others argue that women do not select jobs on the basis of motherhood status, citing evidence that non-mothers are just as likely as mothers to work in female-dominated jobs. Another line of argument put forth is that women enter the labor market with fewer credentials, or are less productive than their male counterparts, thus justifying a pay differential.
While it is difficult to pinpoint the causes of the wage gap in gender-segregated occupations, this study addresses these challenges by focusing on pay differences within specific occupations so as to rule out credentials and productivity as the driving force of women’s lower earnings. Many occupations have a fixed set of qualifications that are necessary for entry into the field, making it easier to dismiss credentials (or a lack thereof) as the cause of the gender wage gap. The study’s focus on one occupation makes it easier to examine and control for differences in productivity.
To this end, the authors examine causes of the gender wage gap among corporate officers. Their data consist of 2,548 large, publicly traded U.S. companies for the period 1996–2011. They focus on whether characteristics of chief executive officers (CEOs) affect corporate officers’ compensation. They examine whether CEOs, as wage setters, treat officers of the opposite gender differently, with male CEOs underpaying women, and vice versa. They also examine whether older CEOs pay men more than women, since they came of age when wage differences between genders were more tolerated.
Even after factoring in other potential determinants of officer compensation, such as a firm’s stock performance, stock volatility, or return on assets, the study found that the age and gender of CEOs matters. Corporate officers who are of the opposite gender to their CEO earn less compensation. This effect was largest when the CEO was male; female officers working for a male CEO earn on average $46,500 per year less than male officers do, whereas male officers working for women earn $21,960 less than female officers.
Female officers working for a male CEO earn on average $46,500 per year less than male officers do
In addition, the authors found that male CEOs offer larger payouts across the board – $15,210 more per year – than female CEOs. Older male CEOs are even more likely to underpay female officers. They reward female officers $360 less per year of age than they do their male counterparts. In other words, the older the male CEO, the more likely it is that the wage gap between male and female corporate officers grows.
An added benefit of the study’s research design is its ability to track how CEO turnover affects compensation. Doing so reveals that officers’ compensation increases when the incoming CEO is of the same gender. This provides strong evidence against the women-as-less-productive explanation for the gender pay gap; it would be highly unrealistic for the productivity of workers to change so rapidly in response to a new CEO as to merit markedly different compensation levels. The more likely explanation is that CEOs discriminate on the basis of gender. Further, this effect is more pronounced with older male CEOs and female officers, regardless of productivity levels.
- Policies that promote pay parity for corporate officers may help reduce the gap in earnings. For example, oversight committees could be tasked with ensuring that compensation and bonuses do not vary drastically by gender.
- Organizations should conduct rigorous and systematic reviews of corporate officer salaries in light of the hidden influence of the wage setter’s gender. The review should focus in particular on situations where the gender of the person determining salaries does not match that of the person receiving the salary, as this is where employees are at risk of being underpaid (conversely, people of the same gender may be overpaid).
More Research Briefs
Of Age, Sex, and Money:
Insights from Corporate
Officer Compensation on
the Wage Inequality
David Newton and
University of Toronto