Even Top Women Executives Aren’t Paid as Well as Men
Pay for performance — the concept that corporate executives earn gobs of stock grants when they perform well, but risk them if their company disappoints — should be a great leveler when it comes to executive pay. In theory, it creates a meritocracy. If the idea is to tie executives’ pay to shareholders’ results, then there should be no difference if the chief executive or chief financial officer is male or female.
But it doesn’t quite work that way, according to a recent study by a researcher at the Federal Reserve Bank of New York and two academic colleagues. The researchers said they found three new facts that show how much pay still differs for men and women on the job, even at the very top of the house.
For one, they found that female executives receive less incentive pay, or bonuses and stock options or grants, than their male peers. In fact, about 93 percent of the gap between their overall pay — the researchers found that the median woman in the study earned 14 percent less than her male peer — can be explained by the women’s smaller incentive pay. “The key finding is that there are substantial differences in executive compensation” for men and women, Stefania Albanesi, an economist at the Federal Reserve Bank of New York, said. “And they’re mostly driven by components that are not salary.”
Because men tend to be awarded more equity, it makes sense that the study found that male executives benefit more when their firms go up in value. A $1 million increase in the company’s stock market value, the study found, led to a $17,150 increase for the men in what the researchers call “firm-specific wealth,” or the total accumulated value of the executive’s stock options and stock grants. The women, meanwhile, received only a $1,670 increase when their companies’ value rose by $1 million. Likewise, when the firm’s value rose by 1 percent, male executives had their accumulated wealth rise by 44 percent, while women had only a 13 percent rise.
So if the pay-for-performance concept really works, then the inverse should be true: If the company’s performance goes down, the male executive’s wealth should be more exposed, too. But in Albanesi’s study, it didn’t work that way. She found that a 1 percent decline in firm value is linked with a 63 percent decline in firm-specific wealth for female executives. For the men, the decline was only 33 percent. “That’s counterintuitive, because we usually think the executive has more skin in the game” with pay-for-performance schemes, Albanesi said. “It’s a double difference, so to speak.”