Professional Documents
Culture Documents
Francesca Franco
London Business School
ffranco@london.edu
Mireia Gine
WRDS, The Wharton School
IESE Business School, Universidad de Navarra
MGine@iese.edu
Abstract
Using a large sample of executives in S&P1500 firms over 1996-2010, we document significant salary
and total compensation gaps between female and male executives and explore two possible
explanations for the gaps. We find support for greater female risk aversion as one contributing factor.
Female executives hold significantly lower equity incentives and demand larger salary premiums for
bearing a given level of compensation risk. These results suggest that females risk aversion
contributes to the observed lower pay levels through its effect on ex-ante compensation structures. We
also find evidence that the lack of gender diversity on corporate boards affects the size of the gaps. In
firms with a higher proportion of female directors on the board, the gaps in salary and total pay levels
are lower. Together, these findings suggest that female higher risk aversion may act as a barrier to full
pay convergence, despite the mitigating effect from greater gender diversity on the board.
*
Corresponding author. We gratefully acknowledge the financial support of Boston College (Carter), PwC INQuires Grant
(Carter), London Business School (Franco) and WRDS (Gine). We appreciate the helpful comments from Aiyesha Dey,
Tim Gray, the editor, two anonymous reviewers, and seminar participants at Duke University, Harvard Business School,
HEC-Lausanne, Lancaster University, Rotterdam University, London Business School, the 2013 University of Colorado
Summer Accounting Conference, and the 2013 European Accounting Association Annual Meeting.
1. Introduction
Practitioners assert that female executives systematically receive lower pay levels than their
male counterparts (e.g., Catalyst Research, 19992013; Hay Group, 2015). Regulators, for their part,
have begun discussing reforms to mandate equal-pay reviews and public disclosures of gender pay
gaps by firms (Lipman, 2015; OConnor, 2015). 1 Yet the academic evidence substantiating these gaps
is mixed. Moreover, the reasons for why female executives might receive lower pay levels remain
unclear. Proposed explanations include female executives segregation in smaller firms or lower paid
positions, greater reluctance to take income risk or engage in pay negotiations, social norms and
gender discrimination (Hymowitz, 2008; Boulton, 2010; Sorkin, 2013; Cadman, 2015). We revisit
these questions by examining the existence of gender pay gaps among U.S. top executives and
investigating the roles of higher risk aversion among women and the lack of gender diversity on
corporate boards as possible channels for the gaps. If the gaps are due to higher risk aversion, we
should observe this effect in the incentive intensity of female executives compensation contracts. If
the pay gaps are related to different social and governance mechanisms when the board is
predominantly comprised of males, the gaps should be mitigated with greater female representation on
the board. While gender diversity in the boardroom has been shown to influence corporate governance
practices, there has been little research on the impact of board gender diversity on executive pay.
Using a sample of executives from ExecuComp from 19962010, we first document that
female executives receive significantly lower salary and total compensation levels compared to male
executives. After controlling for job responsibilities and other personal- and firm-level determinants
of pay, we find salary and total compensation gaps of about 7% and 15%, respectively. Next, using
the sensitivity of the executives option holdings to stock-price changes (delta) and volatility (vega) as
1
President Obama signed a presidential memorandum in 2014 instructing public companies and federal contractors to
report wage information by gender and race to the Department of Labor. On July 2015, the U.K. government launched a
new regulation proposal requiring companies with 250 or more employees to publicly report their gender pay gaps. Other
European Union countries, including Austria and Belgium, already have similar rules.
1
measures of compensation risk, we investigate whether female executives hold different levels of
equity incentives and whether these differentials impact ex-ante compensation contracts. Consistent
with greater risk aversion, we find that female executives hold significantly lower equity incentive
levels compared to males and that females demand larger risk premiums for bearing a given level of
incentives. These premiums are more likely to take the form of additional salary rather than new
equity. Together, these results suggest that female executives higher risk aversion contributes to
lower pay levels (and larger pay gaps) through its effect on the risk profile of the pay packages female
executives accept. Investigating the effect of board gender diversity, we find that greater female
representation on the board and on the compensation committee is associated with lower pay gaps for
female executives. For firms with sample average female board representation, the gender pay gap for
total compensation is reduced by 5% from a 21% gap for firms with no females on the board. These
findings are robust to analyses addressing concerns of female board representation being endogenous
to the firms compensation practices. Together, these results suggest that pay gaps stem, at least
partially, from some form of gender bias in the boardroom or less effective corporate governance
A challenge in documenting the existence of executive gender pay gaps is establishing the
counterfactual pay ratethat is, the pay female executives would have earned had they been males,
all else equal. This challenge is particularly important when considering that at least part of the pay
gaps could stem from unobservable factors impacting female executives selection in specific jobs,
firms, or industries as well as unobservable gender differences affecting pay, such as differences in
human capital or career commitment. We attempt to address concerns that selection bias or omitted
characteristics influence our results. While all our analyses include firm fixed-effects to control for a
firms time-invariant unobservable demand for female executives, we perform several robustness
tests. First, we control for the firms likelihood of having a female executive to address concerns
2
about a systematic segregation of females in specific types of firms. We instrument a firms likelihood
of employing a top-paid female executive with a state-level variable that measures the female
proportion of state delegates elected to the House and Senate in the year. As an alternative approach to
account for endogenous selection, we use propensity-score matching to pair the female executives in
our sample with a subsample of male executives most similar in firm- and executive-level
characteristics. For this subsample of matched pairs, we further collect educational data to rule out the
effect of differences in educational attainment. Third, we include prior year pay and incentives as
additional controls in our models to capture the effect of other unobservable executive-specific
characteristics affecting pay. Our conclusions for the existence of pay and incentive gaps and the
mitigating effects of female board representation are robust to all these alternative specifications.
We make the following contributions to the literature. While the popular press is replete with
articles discussing gender pay gaps, academic evidence on the topic is mixed. Using a variety of tests
and methodologies, we provide evidence that female executives receive significantly lower salary and
total pay levels, which informs the contemporaneous discussions about gender pay gap disclosures.
Second, we provide evidence on the effects of two channels contributing to the gender pay gaps:
female higher risk aversion and the lack of gender diversity in the boardroom. By doing so, we
complement the compensation literature on the effect of gender-specific preferences for compensation
risk and incentives (e.g., Graham, et al., 2013; Brenner, 2014). We provide evidence that female
executives higher risk aversion contributes to the observed pay gaps by affecting ex-ante pay
structures. And, we complement the literature on executive overconfidence, as lower risk aversion is
assumed to be associated with overconfidence through greater at-risk pay (Malmendier and Tate,
2005). Finally, we add to the corporate governance literature on the consequences of board gender
diversity (e.g., Adams and Ferreira, 2009; Matsa and Miller, 2011; Ahern and Dittmar, 2012), by
3
compensation and pay gaps between female and male executives. These results inform the recent
European Union reforms mandating gender diversity quotas on corporate boards (Lublin, 2012).
The remainder of the paper is structured as follows. Section 2 summarizes the related literature
and develops our research questions. Sections 3 and 4 describe our sample and research design.
Section 5 presents our results for the existence of executive gender pay gaps and the roles of female
risk aversion and board gender diversity in affecting the gaps. Section 6 concludes.
Our research relates to three streams of literature. We start by summarizing the literature on
executive gender pay differentials since our first objective it to establish whether gender pay gaps
exist among the top-paid executives in our sample. 2 We next review the studies on gender-specific
risk preferences since they relate to our predictions on the role of female risk aversion as a potential
determinant of the gaps. Finally, we review the research on gender discrimination and corporate board
gender diversity to motivate our predictions on the mitigating effect of female board representation on
Past research on gender differences in pay levels among executives presents mixed results. In
early work, Bertrand and Hallock (2001) report significant executive gender pay gaps (about 13% in
total pay) using a sample from ExecuComp over the 19921997 period and after controlling for job
titles, firm size, performance, industry or firm fixed-effects. Their tests indicate that a systematic
segregation of women into lower-paying occupations and smaller companiesbut not into lower-
paying industriesaccounts for a sizable fraction of the gaps. After controlling for age and tenure,
however, the coefficient on their female indicator remains negative but is no longer significant. They
2
There is a large economic literature on gender pay differentials. In this section, we discuss studies examining gender pay
gaps across top executives at S&P1500 firms, as they are most comparable to our study.
4
conclude that there are not significant executive gender pay gaps over their sample period. One
explanation for this lack of significance is the very low proportion of females in their sample (about
2.5% of the executive-firm-years) and the severe sample attrition (about 82% of their original sample)
when they include executive age and tenure in their models. We extend the results of Bertrand and
Hallock (2001) by covering a much longer time-series (15 versus 6 years only) and exploiting a higher
female sample representation (6% versus 2.5%), which adds statistical power to our tests. We also
hand-collect age data for sample executives and control for endogenous selection of females into
Muoz-Bulln (2010) revisits the findings of Bertrand and Hallock (2001) over a longer
period (19922006) and finds that females earn lower total pay after controlling for tenure, job title,
firm size, and performance. His measure of total pay is ex-post total compensation, which includes
cash payouts from stock-option exercises. When examining salary, he finds that the coefficient on the
female indicator is negative but not significant. He concludes that there are not significant gender gaps
in salary levels and that ex-post variable pay is the most important driver of the gap in total pay.
Consistent with this interpretation, he finds that the value of the exercised stock options is
significantly lower for female executives. He proposes alternative mechanisms for these results,
including women having higher risk aversion, being less able to time their option exercises using
private information, or being less willing to re-price underwater options, but does not test them. 3 In
our analyses, we consider whether the pay gaps relate to risk aversion through ex-ante contracting. By
focusing on ex-ante pay packages, that is, the options awarded and held by the executive rather than
exercised, we test the effect of female risk aversion at the initial granting stage and estimate pay gaps
that are unaffected by gender differences in option-exercise behavior. Muoz-Bulln (2010) also does
not control for unobservable employer or executive traits, nor does he address selection concerns.
3
Results in Huang and Kigsen (2015) support these explanations. Male executives are more likely to hold stock options
that are deep in the money, more likely to hold options until expiration, and more likely to buy stock in the company. The
authors interpret these statistics as evidence of male executives higher confidence.
5
Finally, Bugeja, Matolcsy, and Spiropoulos (2012) investigate gender pay gaps among U.S.
CEOs over 19982010 using propensity-score matching. They match 210 female CEOs to males in
firms most similar in industry, size, board size, and percentage of female directors and find no
significant differences in salary or total pay. They conclude that female CEOs dont receive
significantly lower pay levels than males. In our study, we include non-CEO executives and
investigate the existence of gender pay gaps across the entire corporate suite. This approach allows us
to estimate pay gaps on a much larger sample of individuals, thus exploiting higher cross-sectional
variation in personal and firm characteristics expected to affect executive pay. Moreover, even if the
wage gaps are significantly reduced as women reach CEO positions, it is still important to document
the existence of pay differentials at career stages that precede promotions to CEO positionsor the
lack thereof. Providing evidence on gender pay gaps for all executives also bears on the understanding
of whether the wealth accumulation executives experience through their career progressions towards
Within the principal-agent framework, a risk-averse manager will prefer less income risk and
accept lower levels of incentive pay. According to these predictions, a managers pay-performance
sensitivity will be higher when he or she is more capable of improving the distribution of the firms
payoffs (through, for example, greater responsibilities) or because the executive is less risk-averse.
Consistent with this result, in recent survey work, Graham, Harvey, and Puri (2013) document that
CEOs with less appetite for risk are less likely to accept pay packages that have greater proportions of
stock, stock options, and bonus pay. Coles and Li (2012) reach similar conclusions, finding significant
associations between portfolio deltas and vegas executive fixed-effects and proxies for risk tolerance.
Their results suggest that more risk-averse managers are likely to be subject to less equity risk through
lower deltas and vegas. In a theory work, Goel and Tackor (2008) confirm these predictions.
6
Across a variety of methodologies, economic research also finds systematic differences in risk
preferences between males and females. In reviewing the large body of experimental work, Croson
and Gneezy (2009) and Bertrand (2010) conclude that the literature supports the assertion that females
are more risk-averse than males. Females are less likely to choose gambles and more likely to choose
piece-rate pay over tournaments (i.e., pay conditional on the performance of others), even when their
abilities would suggest otherwise (Gneezy et al., 2003; Gneezy and Rustichini, 2004). 4 Consistent
with this evidence, gender (female) has been used in accounting research to capture potential higher
risk aversion (e.g., Ge, Matsumoto, and Li, 2011; Hodge et al., 2009).
Few studies have investigated the effect of gender on the incentive profile of executive
compensation packages. In their survey, Graham et al., (2013) find that female CEOs, on average, are
less likely to accept riskier pay packages. Brenner (2014), using option exercise data, documents
greater implied risk aversion for female executives relative to males. However, no study examines
whether female executives lower preferences for risk translate in lower equity incentives. This leads
to our first research question of whether gender differences in risk aversion lead to lower equity
incentives for female executives. Moreover, if risk aversion affects pay structures ex-ante, female
executives will likely require greater risk premiums for bearing an existing level of incentives. We
thus also expect female risk aversion to contribute to lower total compensation levels (and greater
gender pay gaps) if the risk premiums female executives demand come in the form of additional
4
This tendency, however, depends on the gender composition of the environment and is lower in settings in which female
representation is higher. Gneezy et al. (2003) find evidence that females compete more effectively against other females.
Gneezy, Leonard, and List (2009) study the effect of culture on the choice of payment structures and find that females in
patriarchal (matriarchal) societies choose competitive pay structures with significantly lower (higher) frequency than
males. They interpret this as evidence that culture and the gender composition of the environment, in particular, matter.
7
2.3. Gender diversity in the board
A first channel through which gender-diverse boards can affect the size of the executive
gender pay gaps comes from theories of gender discrimination. Altonji and Black (1999) summarize
two economic theories: a) taste-based discrimination in which members of a majority group (males)
are prejudiced against members of a minority group (females), and b) statistical discrimination in
which members of the majority group (males) apply a heuristic to the expected productivity of the
minority group (females) based on negatively-biased assumptions about their attributes (e.g., skills).5
Both theories predict that, in equilibrium, members of the minority group, even if equally skilled, will
receive lower wages and that the relative size of the minority group attenuates the wage gaps (i.e.,
collective action can affect discriminatory outcomes). Social psychologists have tested these
predictions in the context of females reaching top managerial positions (e.g., Heilman, 2001; Eagly
and Karau, 2002; Lyness and Heilman, 2006). Together, these theories suggest that the pay discounts
for female executives can be mitigated in gender-diverse boards since female directors will less likely
discriminate other females based on prejudices or assumptions about lower expected productivity.
A second channel through which gender board diversity may affect pay gaps is through better
governance. Hillman et al. (2007) and Adams and Ferreira (2009) provide evidence that having
females on boards enhances oversight and monitoring by promoting better board attendance and
greater accountability for managers. Srinidhi et al. (2011) suggest that gender board diversity is
associated with higher earnings quality. Gul et al. (2011) find evidence that gender-diverse boards
have more informative stock prices, potentially resulting from higher quality discussions in the
boardroom. Consistent with these views, McInerney-Lacombe et al. (2008) and Joy (2008) suggest
that the presence of female directors brings more informed deliberations. Based on these arguments,
5
Altonji and Black (1999) summarize a third theory of occupational segregation in which females make different
investments in human capital. Occupational segregation is not likely to be as prevalent in our setting because we limit our
analyses to executive positions, and we control for job titles to the extent that some executive roles are more likely to be
occupied by females (e.g., divisional titles vs. CEO).
8
gender-diverse boards may bring about better monitoring, which can lead to less gender inequality in
the executive pay setting process. However, few governance studies have examined whether gender
diversity in the boardroom influences executive pay and gender pay gaps in particular.
Adams and Ferreira (2009) find evidence of greater CEO performance-related turnover in the
presence of boards with greater female proportions, but they find no evidence that board gender
diversity affects the level or form of CEO pay. Ahern and Dittmar (2012) exploit a Norwegian law
implemented in 2003 that requires 40% female board representation. They also find no evidence that
greater female representation alters the level of CEO pay. One explanation for their lack of results is
that female directors may have no influence on pay packages for executive positions typically filled
by males. 6 In addition, these studies do not consider the gender of the executive, thus they are silent
on the existence of gender pay gaps and on the role of female directors in affecting the gaps.
Matsa and Miller (2011) examine the effect of female board representation on the proportion
of female executives employed at the firm. Using board data over 19972009, they document that the
proportion of females on the board is positively related to the likelihood of having a female CEO and
to the proportion of executive positions held by females. The authors also find a positive correlation
between the proportion of total executive compensation paid to female executives, as an alternative
measure of female executive employment, and female representation on the board. However, they do
not test whether female executives are paid less than males for covering similar jobs titles at their
firms. 7 Finally, Elkinawy and Stater (2011) examine gender differences in executive compensation
levels and the effect of male board representation on such differences. Using Execucomp and
6
Another explanation for the lack of findings by Adams and Ferreira (2009) is that their female board representation
variable lacks power. In our sample period, we may likely find greater effects because of board composition changes
introduced by the Sarbanes-Oxley Act in 2002 and the subsequent NYSE-NASDAQ-AMEX listing rules in 2004. These
regulatory changes required outside board members to serve on standing committees. If the new pool of candidates for
outside board positions includes more female directors, the increased presence of females on the board may have greater
effects on the firms executive pay packages.
7
Alternative gender dynamics are tested by Newton and Simutin (2014), who investigate the association between the
CEOs gender and pay levels of other non-CEO executives. They find that executives of opposite gender than the CEO
have lower pay levels and that this effect is greater when the CEO (non-CEO executive) is a male (female). Our study
differs in that it examines the effect of the gender composition of the board.
9
RiskMetrics data over the period 19962004, they find that all executives receive relatively lower
salaries in male-dominated boards and that the discount is stronger for female executives. However,
they do not find significant effects for total compensation levels. We consider a later time-series when
female board representation is higher. We also control for female executives selection with IV and
propensity-score matching estimations and address concerns relating to female board representation
Together, these streams of research motivate our second research question of whether female
representation on the board affects the executive gender pay gaps. Although we cannot distinguish
between the channels of reduced statistical or taste-based discrimination against women or improved
board functioning and monitoring, we predict that greater female representation on the board leads to
We begin our sample selection with all executives in ExecuComp over the period 1996-2010,
with 1996 being the first year that RiskMetrics data on board characteristics are available. We
describe our initial sample in Table 1. Out of the 165,774 executive-years in ExecuComp, only 9,832
(about 6%) are female executive-years (for 2,174 unique female executives). The remaining 155,942
are male executive-years (for 32,105 unique male executives). Table 1 Panel A provides descriptive
statistics on two sets of executive characteristics. The first set includes measures for the executives
salary, total compensation (sum of salary, bonuses, long-term-incentive payouts, value of the
restricted shares and stock option grants for the year, and any other annual pay), and equity incentives.
We follow prior literature (e.g., Guay 1999; Core and Guay, 2001; Coles et al., 2006) and measure
executive equity incentives as the deltas and vegas of the option portfolio held by the executive in the
year. Option deltas measure the change in the value of the executives option portfolio for a 1%
10
change in the firms stock price; option vegas measure the change in the value of the executives
option portfolio for a 1% change in the standard deviation of the firms stock returns.
The second set of executive characteristics includes the executives age, tenure and job titles at
the firm. Since age fields are not consistently reported in ExecuComp for most executives, we back-
fill the age fields for all executives reporting at least one non-missing age field over our sample period
and hand-collect the age for the remaining female executives missing age in all years. This approach
allows us to avoid the severe sample attrition in Bertrand and Hallock (2001) due to missing age
fields. We identify job titles using the Title text field in ExecuComp. The descriptions reported in
the field are up to 30 characters long and correspond most closely to the titles listed by the firm in the
summary compensation table of its DEF 14A filing with the SEC. Since executives often cover more
than one job title in the year, we use the field to extrapolate the list of different titles covered by the
executive. Differently from Bertrand and Hallock (2001), we extrapolate an executives job titles
using the entire text description, not just the first two reported titles, and flag the following titles:
CEO, CFO, COO, Other Chief (e.g., CMO, CAO), President, Vice-President, Chairman, Vice-
Chairman, Divisional President, Divisional Chief, Divisional Chair, and Any Other Title. 8 We then
follow an approach similar to Aggarwal and Samwick (2003) and aggregate the executive titles into
job categories aimed at capturing different levels of executive responsibilities. Aggarwal and
Samwick (2003) show that pay differentials across executives are a function of the corporate versus
divisional type of executive responsibilities. 9 Following a same logic, we aggregate the executive job
titles in four, mutually exclusive, categories: CEOs; executives covering other non-CEO corporate
positions (i.e., CFO, COO, Other Chief, President, Vice-President, Chairman, Vice-Chairman);
executives with divisional titles only (i.e., Divisional President, Divisional Chief and/or Divisional
8
Bertrand and Hallock(2001) code executive job titles (i.e., CEO/Chair; Vice-Chair; President; Vice-President; Executive
Vice-President; Senior Vice-President; Group Vice-President; CFO; COO; Other Chief Office; and Other title) based
on the first two job descriptions listed in the Title field in ExecuComp.
9
Aggarwal and Samwick (2003) show that executives with divisional responsibilities have typically lower pay-
performance sensitivities than non-CEO corporate executives, who in turn have lower sensitivities than CEOs.
11
Chair with no other corporate positions); and executives with other job titles (i.e., any title other than
Table 1 Panel B compares characteristics of female and male executives. Female executives
earn, on average, salary and total compensation levels that are significantly lower than males (about
14% and 24% lower). Female executives also hold average equity portfolios with lower deltas and
vegas (about 39% and 32% lower). Consistent with Bertrand and Hallock (2001), we find that female
executives are, on average, 4 years younger and have tenures at their firms that are 1.5 years shorter
than males. 11 Female executives are less likely to be CEOs (6% versus 18% for males) but more likely
to hold other non-CEO corporate positions (59% versus 54% for males). Across non-CEO corporate
titles, females are less likely to cover top roles such as the Chairman or Vice-Chairman, but more
likely to cover the Vice-President, CFO, and/or Other Chief positions. 12 Female executives are also
more likely to hold divisional titles (31% versus 25%), and other titles (3.6% versus 2.5%). These
statistics reinforce the importance of controlling for the type of job responsibilities when examining
Table 2 Panel A provides summary statistics on the set of firm-level characteristics used in
our tests. The sample includes 19,451 firm-year observations with available data on the standard
economic determinants of pay and incentives (e.g., Gaver and Gaver, 1993; Core et al., 1999; Bizjak
et al., 1993; Guay, 1999; Core and Guay, 1999; Coles et al., 2006). The firm-level variables include
board characteristics (board size and the proportion of outside directors), and other variables
measuring firm size (natural log of sales), leverage, performance (return on assets and stock returns),
risk (log of variance of stock returns), capital and R&D expenditures, and growth opportunities
10
The sum of the percentages for the eleven job titles exceeds 1 because executives often cover more than one title in the
year. By construction, the sum of the percentage for the four, mutually exclusive, aggregate job categories (i.e., CEO,
Non-CEO Corporate Titles, Divisional Titles, Other Titles) equals 1.
11
We measure tenure as years since the executive joined the company (JOINED_CO field on ExecuComp) or, if missing,
the number of years the executive appears on ExecuComp at the firm. Our conclusions are unchanged if we measure
tenure as the number of years on ExecuComp at a specific firm for all observations.
12
Executives covering non-CEO corporate titles like the firms Chairman and Vice-Chairman receive significantly higher
average pay levels than other non-CEO corporate executives in ExecuComp over our sample period.
12
(market to book value of equity). Table 2 Panel A also provides summary statistics on female board
representation. The sample for the female board representation variables is 18,398 firm-years for
1997-2010, since 1997 is the first year that director gender data are populated on RiskMetrics. Across
all years, about 64% of sample firms have at least one female director on the board, with the
proportion of female directors averaging 10%. We note similar statistics when we compute the
frequency and proportion of female directors who are outside board members.
Table 2 Panel B reports mean comparison tests between firms with at least one female
executive in the year and firms with no female executives. Firms with at least one female executive
have significantly higher proportions of outside board members, are larger, have less leverage, higher
ROA, lower stock returns, less spending on R&D, and higher growth options. Firms with at least one
female executive also report significantly higher proportions of female board members. These results
are consistent with the evidence in Matsa and Miller (2011) that higher proportions of female directors
are positively associated with a firms likelihood of having at least one female executive. In
untabulated industry composition statistics, we also find that, compared to the distribution of firms
with male executives only, females are relatively more represented in the wholesale/retail and
telecommunication industries and less represented in the energy and durable consumer industries. In
the analyses that follow, we use econometrics techniques to moderate concerns about the selection of
female executives in specific types of firms or industries as well as concerns about female board
4. Methodology
4.1. Model
Our first set of analyses extends the models in Bertrand and Hallock (2001) to document the
existence of executive gender pay gaps in our sample. We start with the following OLS model:
13
+ 5(Tenure)ijt+ 6(Tenure)2ijt+ 7(Age)it+ 8(Age)2it + 9Board Sizejt
+ 10% Outside_Dirjt + 11Ln(Sales)jt-1 + 12Leverage jt-1 + 13ROA jt+ 14RET jt
+ 15ROA jt,jt-1 + 16RETjt, jt-1 + 17FirmRiskjt-1 + 18CAPEXjt-1
+ 19RDjt-1 + 20MB jt-1j=1,n+ jFIRMjt + k=1,n kYEARt +ijt (1)
where COMPijt measures the natural logs of salary or total compensation. Our primary variable
of interest is FEMALE. A significantly negative 1 indicates that female executives receive lower
control variables to isolate any gender effect in our models. First, we include the executives age and
tenure at the firm, since prior research has demonstrated that experience raises worker productivity
and earnings. 13 Second, we control for the type of executive job responsibilities. We include the first
three aggregate job categories (i.e., CEO, Non-CEO Corporate titles, and Divisional titles) described
in section 3.1 and allow the fourth category (i.e., Other titles) to be included in the intercept. 14
Third, we include the firm-level variables presented in Table 2 (all defined in the Appendix). We
estimate our models using firm fixed-effects to capture time-invariant unobservable firm
characteristics (e.g., firm culture) that may be correlated with the firms selection of a female in a top-
paid executive position or with the firms compensation policies. We also include year fixed-effects to
capture labor market trends over time. To control for autocorrelations in the errors, we compute robust
Our second set of tests examines the roles of female risk aversion and lack of gender diversity
on the boards as partial explanations for the gender pay gaps. To test for differential risk aversion, we
first estimate our models after replacing the salary and total compensation variables with the
13
Following Bertrand and Hallock (2001), we include quadratic terms for age and tenure. Since economic models predict
the returns on experience to be positive but diminishing over time, we expect positive coefficients on age and tenure and
negative coefficients on the squared terms.
14
Our findings of gender pay gaps are robust to including the original job titles (i.e., CEO, CFO, COO, Other Chief,
President, Vice-President, Chairman, Vice-Chairman, Divisional President, Divisional Chief, Divisional Chair, and Other
title) as separate indicators instead of our four aggregate job categories.
15
Our results are not sensitive to clustering standard errors at the firm rather than the executive level.
14
executives stock option delta and vega. 16 If female executives are more likely to sort into lower deltas
and vegas because of higher risk aversion, we predict a negative coefficient on FEMALE. We also
investigate whether female executives require greater risk premiums for holding a given level of
incentives and whether the risk premiums female executives demand impact the incentive structures
of the compensation packages they receive. We augment Equation (1) to include lagged option delta
and vega and their interactions with the FEMALE indicator. We predict positive coefficients on delta
and vega for both measures of compensation and positive coefficients on the interaction when salary
is the dependent variable. Finally, to investigate the effect of board gender diversity on the size of the
executive gender pay gaps, we augment Equation (1) with the proportion of female board members
and its interaction with the FEMALE indicator. If having more females on the board mitigates the pay
One concern in our analyses is that some unobservable firm characteristics exist that are
related to both the firms decision to hire female executives and the firms compensation policies. The
firm, for example, may offer a contract with lower pay levels and/or incentives that female executives
are more likely to accept. If that is the case, the coefficient on FEMALE should not be interpreted as
female executives being inclined to accept lower pay levels but females taking jobs at firms with
lower paying contracts. To the extent that any of these unobservable firm characteristics are time-
invariant or slow moving, the inclusion of firm fixed-effects in our models should mitigate these
concerns. However, to ensure that our results are not driven by females selection in specific types of
16
Research examining incentive effects have also considered portfolio (stock + option) deltas (for example, Core and
Guay, 1999). We do not use this proxy for two reasons. First, portfolio deltas are less likely to reflect payout convexity
due to the inclusion of restricted shares (Hayes et al., 2012). Second, firms often implement executive ownership
requirements as a multiple of salary (Core and Larcker, 2002). Since stock grants and the resulting holdings will fluctuate
with salary levels, portfolio deltas may not reflect risk aversion as cleanly as option deltas and vegas. Thus, we base our
analyses on these incentive measures, with option vega being the most powerful proxy since its hypothesized relation with
risk-taking activity is unambiguous (Hayes et al., 2012; Armstrong et al., 2013).
15
firms, we use a Heckman selection model in which the first stage probit models the firms
unobservable demand for female executives based on a set of firm characteristics plus an instrument.
instrument because factors that are arguably correlated with endogenous selection (i.e., the likelihood
that the firm employs a female executive) are also likely to affect the outcome variable (i.e., firms
compensation policies). We source our instrument from the gender inequality literature. Sugarman
and Straus (1988), updated by Di Noia (2002), develop a state-level gender equality index that
combines a set of economic, political and legal factors. The underlying assumption in Sugarman and
Straus (1988) and De Noia (2002) is that states with higher gender equality would have a larger pool
of females with similar education and occupational prestige as men, and thus greater likelihood to
have female delegates elected to Congress. Huang and Kisgen (2015) use this index to instrument the
likelihood of a firms having a female CEO based on the location of the firms headquarters. Since
some of the economic factors used in the original index include wage equality and are therefore
general attitude toward females. Our instrument is a state-level variable that measures the proportion
of female delegates elected to the House and Senate from the state in the year. 17 We obtain the listing
of female delegates elected to each Congress by state from the Office of the Historian, U.S. House of
Representatives. We obtain the sizes of the total delegates, by state, updated for each 10 year period of
the census, from the U.S. Census Bureau. Our conjecture, similar to Huang and Kisgen (2015), is that
the proportion of females elected in a state is associated with the local supply of females qualified for
executives roles, thus the likelihood of a firm headquartered in that state hiring a female executive, but
is not directly related to the executive pay practices at any specific local firm.
17
Di Noia (2002) uses data from a 1992 Census Bureau publication that reports the proportion of females elected to state
offices. Since we were unable to find any update to that census data, we use the proportion of females elected to national
offices to build our instrument.
16
Table 3 (Column 1) reports estimation results from the first-stage probit for the firms
likelihood of having a female top-paid executive as a function of our instrument, firm characteristics,
industry and year fixed effects. The set of firm characteristics includes all the firm-level variables in
Equation (1) plus the firms proportion of female directors since the statistics in Table 2 suggest a
positive association between the proportion of female board members and the likelihood of the firm
having at least one female executive. Supporting the first condition for the validity of our instrument,
we find a significant positive association between the instrument and the firms likelihood of having a
female executive in the year (at p<0.001 level), with a -statistic of 20.34. In robustness analyses that
follow, we include the Inverse-Mills ratio estimated from the probit as an additional control in the
matching to pair the female executives in our sample to male executives most similar in firm- and
executive-level characteristics. Tucker (2010) extensively discusses the suitability of the method when
dealing with the effect from observable variables on the outcome of interest. While IV estimations
mitigate selection problems due to unobservables by estimating a bias correction term, propensity-
score matching mitigates selection problems by pairing treated and untreated observations based on a
set of observable characteristics. 18 Since we expect both unobservables (a firms friendless towards
females) and observables (executive and firm characteristics) to impact executive pay differentials, we
The propensity score method uses a logit that models an executives likelihood of being
female as a function of observable covariates. Since the ultimate goal of the matching is to find a
18
As both studies point out, the method alleviates concerns about misspecification because the probability of an
observation receiving the treatment is estimated conditionally on a set of observable covariates (e.g., Li and Prabhala,
2007; Tucker, 2010).
17
control group (male executives) that resembles (in terms of distributional similarity) the treated group
(female executives) on executive- and firm-level factors, we use our complete set of executive and
firm characteristics to extrapolate matched pairs with the most similar age, tenure, job titles, and
employed at firms with most similar size, leverage, performance, growth, risk characteristics and
industry. This approach is consistent with the recommendations in Li and Prabhala (2007) to include a
comprehensive list of attributes when estimating the score. Moreover, by including the executive- and
firm-level characteristics we use as controls in our models, we can relax the assumption of a constant
functional relationship between the controls (e.g., age, tenure, title, firm size, etc.) and the outcome
variables (pay and incentive levels) across the two treatment groups (i.e., female and male).
Table 3 (Column 2) tabulates results from the logit model we use to generate the propensity
scores to match female to male executives in our sample. We estimate an executives likelihood of
being female as a function of all the executive- and firm-level variables in Equation (1) plus the firms
proportion of female directors, industry and year fixed effects. 19 The results from the logit are
generally consistent with the univariate results in Tables 1 and 2. Using the propensity scores obtained
from the logit, we match each female-year observation with a male-year observation with the closest
score. We additionally restrict the search with Mahalanobis-metric matching based on title, age,
tenure, industry, and firm size, to ensure that the matched male is of the most similar age and tenure
and has the same role in a firm in the same industry and of most similar size. We match on an annual
basis so that a female in any given year is matched to a male in that same year and with replacement
(i.e., allowing a male to match to more than one female). In doing so, we end up with a balanced panel
of 6,784 matches of female and male executives most similar in firm- and executive-level
19
We use a logit model to estimate the probability of a firms having a female executive, as it is the most common
approach to estimate propensity scores for a singular treatment effect (see Lawrence et al., 2011).
18
characteristics. 20 In additional analyses that follow, we replicate our models over the subsample of
5. Results
Table 4 reports results from our first set of tests investigating the existence of gender
compensation gaps among executives. Columns 1-2 present results from the OLS models. Columns 3-
4 replicate the estimations after including the Inverse Mills ratio from the first-stage IV probit
reported in Table 3 (Column 1). Columns 5-6 present results for the subsample of executive female-
years and their matched male-years determined by the first-stage propensity score logit reported in
Table 3 (Column 2). Across both models in Columns 1-2, the FEMALE coefficient is negative and
highly significant. When salary is the dependent variable, the coefficient on FEMALE is -6.6%. When
total compensation is the dependent variable, the coefficient on FEMALE is -14.3%, equivalent to a
percentage gap of about 15%. 21 These results provide first evidence for the existence of significant
gender pay gaps in our sample. Including the Inverse Mills correction factor or restricting sample
observations to the propensity score matched pairs does not alter our results. We continue to find
significant pay gaps for female executives, with coefficients of -6.3% and -13.6% (when including the
Inverse Mills in the models) and -8.8% and -15.2% (when using the propensity score matched
subsample), for salary and total compensation levels, respectively. All our results are also robust to
restricting the analyses to the subsample of firm-years with at least one female executive or replacing
the firm fixed-effects with (2-SIC codes) industry fixed-effects. These additional results moderate
further concerns that the significantly negative coefficients on FEMALE capture a segregation of
20
As evidence of balance in the panel, all but five covariates are statistically insignificantly different between the females
and their matched males. And, for those five, although statistically significant, they are not economically different. The
largest difference is for the percent of female board members which is 3% larger for the female observations.
21
This is computed as (exp -0.143-1)*100).
19
Another potential concern in our analyses is that the gender pay gaps we observe in Table 4
come from some unobservable executive characteristics that differ systematically between men and
women such as commitment to the labor force, motivation to succeed, innate ability, and family
responsibilities (United States General Accounting Office, 2003). To address this concern, we perform
several additional tests. First, we estimate our models including prior year pay. If pay levels differ
across executives due to unobservable traits such as having lower career advancing opportunities,
education, qualifications or ambition, or more family responsibility, the inclusion of prior year
compensation should control for the effect of such traits on current year pay. In this specification, the
coefficient on FEMALE can be interpreted as average annual pay increases for female executives. As
reported in Table 4 (Columns 7-8), we continue to find statistically significant negative coefficients on
FEMALE for both salary and total compensation. Second, although controlling for prior year pay
should capture the effect that other executive characteristics, including educational achievements,
have on pay, we hand-collect education data for the female executives and the propensity-score
matched males. Of the original 6,784 matched pairs, we are able to obtain education data for each
person in 4,769 pairs. We re-estimate our model using this subsample and adding two variables
measuring whether the executive attended an ivy-league school and has an MBA degree. In
untabulated analyses, we continue to find that the gender gaps in compensation remain, suggesting
that any differences in educational achievements are not driving our results. Collectively, these
additional analyses suggest that executive-specific unobservable characteristics are unlikely to drive
our main finding of significant salary and total pay gaps between female and male executives.
Third, it could be the case that our results are driven by male executives experiencing greater
turnover rates than females. If so, the gaps may be due to additional pay male executives receive
around turnovers (such as for the equity forfeited at the prior employer or other relocation expenses).
To address these concerns, we rerun our analyses in Table 4 after excluding the first year an executive
20
appears at a firm and find that our results are unchanged. We reach similar conclusions when we
compute salary and total compensation changes around a sample of 900 executive gender turnovers
made of 496 female executives replacing male executives and 404 male executives replacing female
executives covering identical titles at the firm over two consecutive years. 22 Untabulated univariate
analyses indicate that male-to-female replacements are associated with significantly negative salary
changes and significantly lower total compensation changes than female-to-male replacements. We
also obtain similar results in multivariate analyses. We estimate changes in salary and total
compensation as functions of changes in executive characteristics and include year fixed effects. In
Table 5 Columns 1 and 2, when we estimate the model using only the 900 switching observations, the
indicator capturing male-to-female replacements is negative but not significant, possibly because of
the limited the sample size. In Columns 3 and 4, we also include observations of executive turnovers
occurring within the same job category at the firm but that did not involve a change in gender as the
baseline to better capture the different effect of gender changes. In this specification, we further
include firm fixed effects to allow for within-firm comparisons across executive turnovers involving
gender changes and turnovers with no gender changes. We find that male-to-female (female-to-male)
replacements are associated with significantly negative (positive) salary and total compensation
changes compared to the baseline case of turnovers involving no changes in gender. Results from
these turnover analyses are consistent with our main result that female executives are paid lower
compensation levels for covering similar job titles of male executives at their firms.
Having documented the existence of significant gender compensation gaps in our sample, in
this section we examine the role of female risk aversion as a contributing factor. Table 6 reports
22
Out of the 900 gender turnovers, 491 are internal promotions and the remaining 409 are external appointments, with the
proportion of internal promotions (external appointments) being 58% (42%) for male-to-female replacements and 50%
(50%) for female-to-male replacements, respectively. Based on these statistics, we have no reason to believe that the
results are biased because of externally appointed males receiving significant hiring premiums at the firms they join.
21
estimation results from our models. For both incentive measures, we find a negative and significant
coefficient on FEMALE, consistent with female executives holding significantly lower equity
incentives. These results support the conjecture that female executive show, on average, greater
aversion towards incentive risk as captured by lower deltas and vegas (see Goel and Thakor, 2008;
Coles and Li, 2012). As with our analyses in Table 4, we perform tests to address concerns about
endogenous selection and executive unobservable characteristics. Columns 3-4 include the Inverse
Mills ratio from the first-stage IV probit for the firms likelihood of having a female executive.
Columns 5-6 present results for the subsample of matched pair determined by the propensity score
matching. Columns 7-8 present the results after including lagged incentives to our models. Across all
specifications, our results that female executives report substantially lower equity incentives remain
unchanged. In untabulated tests, we examine the possibility that our findings are driven by systematic
gender differences in wealth accumulation. We replicate the models in Table 6 after including the log
of the value of the executives stock holdings as a proxy for wealth. We find that the coefficients on
FEMALE remain negative and significant, suggesting that female executives continue to hold lower
Next, we test whether differential risk aversion translates in different pay structures across
female and male executives. We replicate our models for salary and total pay after including the
lagged values of the executives delta and vega as main variables and interacted with FEMALE. We
expect that greater equity incentives will result in higher pay for all executives, as risk-averse agents
will require greater premiums to bear higher levels of risk, yielding positive coefficients on the deltas
and vegas. But we have two predictions specific to differential risk aversion for females. First, if
female executives are more risk-averse than males, they will likely require premiums in the form of
additional safe pay (i.e., salary) rather than new equity. This prediction would translate into positive
23
An alternative would be to use the average per share delta and vega as the dependent variable since that abstracts from
wealth accumulation. However, if female risk aversion manifests in females accepting contracts with fewer equity grants,
this dependent variable would not capture that.
22
coefficients on the interactions of FEMALE and the lagged deltas or vegas when salary is the
dependent variable. Moreover, if females also prefer, at the margin, fewer equity grants for an existing
level of incentives, we expect insignificant coefficients on the interactions of FEMALE and the lagged
deltas or vegas when total compensation is the dependent variable, since the lower equity grants will
offset the higher salary premiums females require. Results in Table 7 support these predictions.
Furthermore, the significantly negative coefficients on FEMALE across all models suggest that,
despite the greater premiums, female executives still receive lower salaries and total pay levels.
The results that female executives hold significantly lower option portfolios and require
greater risk premiums for a given level of incentives are also consistent with female executives being
under-confident relative to males. The compensation literature agrees that overconfidence translates
in executives accepting pay packages with larger stock option and share grants and/or delaying stock
options exercises (Malmendier and Tate, 2005). We interpret our results as higher risk aversion, since
the literature assumes that overconfident executives are also less risk-averse. Consistent with this
view, Humphrey-Jenner et al. (2015) finds that overconfident executives are willing to accept greater
incentive pay, measured as the proportion of total pay coming from stock option and share grants.
Together, results in Tables 6 and 7 support the prediction that female executives higher risk
aversion can contribute to lower pay levels (and greater compensation gaps) through its effect on the
risk profile of the pay packages female executives likely accept. Our results also suggest that female
higher risk aversion may act as a deterrent to pay convergence. In untabulated analyses testing for
trends in the gaps, while we find that the salary and total pay have declined over time, we find no
evidence that the incentive gaps have. 24 These results suggest that higher aversion to incentive risk
24
We test for time trends in the gap by replicating our models in Tables 4 and 6 after interacting FEMALE with an
indicator variable capturing the post-2001 period. We select the post-2001 window because of the board composition
changes that started with the Sarbanes-Oxley Act in 2002 and the subsequent NYSE-NASDAQ-AMEX listing rules.
23
5.3. The role of female board representation
We investigate the extent to which gender board diversity affects the size of the gender pay
gaps in Table 8. Across all model specifications, we find that the coefficient on FEMALE is still
negative and significant and the coefficient on its interaction with %FEMALE_BOARD is positive
and significant for both flow compensation measures. 25 For a firm with sample average proportion of
female board members (9%), the gender pay gap in total compensation is approximately 5% lower
than the 21% gap for firms with no females on the board. 26 These results suggest that gender pay gaps
exist, but that greater gender diversity in the boardroom mitigates the gaps. Table 8 (Columns 3-8)
replicates the set of tests presented in Tables 4 and 6. We find that the economic impact of board
gender diversity on the pay gaps is similar in magnitude across all model specifications. As for the
tests for the existence of the pay and incentive gaps, the female board representation results are robust
to restricting the analyses to firm-years observations with at least one female executive, or estimating
the models after replacing the firm fixed-effects with (2-SIC codes) industry fixed-effects.
We run several additional analyses (untabulated) to test the robustness of our results. First, we
replicate the models in Table 8 after excluding CEO observations to address concerns that our results
might be driven by highly-paid female CEOs appointing more females to the board, altering the
direction of causality. Our board composition results are robust to this sample restriction. We also
estimate our models on CEO observations only and find no evidence of gender pay gaps. One
potential explanation is that, with the limited pool of candidates qualified to CEO positions and the
scarcity of females in that pool, firms seeking to a hire a female CEO must pay competitive wages.
Another likely explanation is that our analysis lacks power due to lack of sufficient gender variation
within the sub-sample of CEOs only. Second, we include the proportion of female executives at the
firm as an additional control in our models to test whether the effect from board gender diversity gets
25
Since most of female board members are outsiders, we obtain very similar results when we use the proportion of female
outside directors rather than the proportion of all (outside and inside) female directors as our board representation variable.
26
These are computed as (exp 0.582*.09-1)*100 and (exp -0.217-1)*100, respectively.
24
mitigated when the firm has more female top-paid executives. Results from these tests do not alter our
conclusions. 27 Third, we replicate the models after replacing the female board representation variable
with the proportion of female directors serving on the compensation committee to test whether gender
diversity on the committee acts as a direct channel in mitigating potential gender biases in the pay-
setting process. 28 We find that the coefficient on the interaction term is also positive and significant,
suggesting that gender diversity on the compensation committee helps narrow the gaps.
An additional econometric problem in assessing the effect of board gender diversity is the
endogenous nature of board composition to the firms compensation policies (Adams and Ferreira,
2009). 29 This problem would arise if, for example, companies with less gender biased pay policies are
also more likely to appoint more female directors on their boards. In an attempt to address these
concerns, we estimate the proportion of the firms female board members using two instrumental
variables. First, we follow Adams and Ferreira (2009) and use the firms fraction of male board
members who serve on other boards that include female directors. The identifying assumption is that
the more socially connected the firms male directors are to women through other boards, the more
female directors should be observed on the firms board. Second, we follow Campa and Kedia (2002)
and use the industry average proportion of female board members (computed at the 2-SIC codes
level), after excluding sample firms. The identifying assumption is that the more female directors are
in the industry, the higher the supply of qualified female directors available to serve on the firms
board. By excluding sample firms from the computation, this measure is less likely to be correlated
with sample firms characteristics. Table 9 presents the results from the first-stage IV models. As in
Adams and Ferreira (2009), we include controls for all firm-level variables we use in the second stage
27
Our results are qualitatively similar in alternative model specifications that control for both the CEO being a female and
the proportion of female executives at the firm.
28
Compensation committee composition is available starting from 1998 so these analyses are for 1998-2010.
29
We test for endogeneity using the Hausman test as described in Larcker and Rusticus (2010) and Lennox et al. (2012)
and reject the null that board composition is exogenous to firm compensation practices. This reinforces the importance of
addressing the endogeneity of board composition in compensation studies.
25
as well as firm-fixed effects. Across both columns, we observe a positive and significant relation
between the instruments and the firms percentage of female board members (both at the p<0.001
level). Table 10 reports the results from the second-stage regressions. Regardless of the instrument
used, our findings from Table 8 remain unchanged, although the coefficient on the female board
interaction is only one-tailed significant when using the Adams and Ferreira (2009) instrument.
As for the female board representation variable, we complement the OLS results for the female
on the board, there are fewer degrees of freedom to select compensation committee members as they
must be from the existing board and, since the new stock exchange listing rules of 2004, be
independent. As a result, we would not expect the Adams-Ferreria (2009) instrument to work well in
this setting since male compensation committee members are less likely to be able to influence the
firms choice of other members. 30 Using the industry average proportion of female compensation
committee members as the instrument, we continue to find evidence that gender pay gaps exist and
that diversity on the compensation committee serves as a channel in narrowing the gaps.
Collectively, our findings are consistent with gender pay gaps resulting, at least partially, from
lack of gender diversity on the board. The results could be attributed to lower gender discrimination or
better governance oversight when the proportion of female directors on the board increases. Although
we cannot distinguish between these explanations, they are both consistent with the lack of board
diversity being associated with lower salary and total pay levels for female executives.
6. Conclusions
Practitioners and the press assert that female executives receive significantly lower pay levels
than their male counterparts, but academic studies on this question provide mixed results. We first
document whether gender pay differentials exist using a large sample of executives in S&P1500 firms
30
Consistent with this conjecture, the Adams-Ferreira (2009) instrument loads weakly negatively (rather than positively)
in the first-stage model.
26
over the 19962010 period and find evidence of significant gender pay gaps. Although we attempt to
validate our results using a variety of econometric techniques to control for endogenous selection and
executive unobservable characteristics, we cannot exclude the possibility that the gender pay gaps we
document in our sample are a function of some other unobservable labor market dynamics related to
We then investigate two potential explanations for the observed pay gaps. We first examine
the role of greater female risk aversion and its effect on ex-ante compensation contracting. We find
that female executives hold significantly lower equity incentives. The lower equity incentives are also
significantly associated with the level and structure of the pay packages female executives receive.
These results are consistent with greater female executive risk aversion as partial explanation for the
gender gaps in total pay. We next examine the role of gender diversity in the boardroom. Results from
these tests suggest that, when firms have more women on their boards or on the compensation
committee, the gender pay gaps are reduced. These findings are robust to analyses addressing
concerns of female board representation being endogenous to the firms pay policies. Together, our
results suggest that the pay gaps are, at least partially, due to gender bias in the boardroom or lower
governance oversight with fewer females on the board and that innate higher risk aversion among
women may inhibit full pay convergence, despite the mitigating effect of board gender diversity.
27
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Table 1: Summary Statistics of Executive Characteristics
Panel A of this table reports descriptive statistics of the flow compensation, equity incentives and other executive
characteristics for all executives in ExecuComp between 1996 and 2010 (165,774 executive-years). Panel B presents
univariate comparisons between female and male executives (9,832 and 155,942 executive-years, respectively). All flow
compensation and equity incentive variables are in millions. ***, **, * indicate significance at p < 0.01, p<0.05, p<0.10 (two-
tailed), respectively. All variables are defined in the Appendix.
31
Table 2: Summary Statistics of Firm Characteristics
Panel A of this table reports descriptive statistics of firm characteristics for our sample of ExecuComp firms with available
data on the selected variables between 1996 and 2010 (19,451 firm-year observations). The sample for the female board
representation variables is 18,398 firm-years for 1997-2010, since 1997 is the first year that director gender data are
populated on Riskmetrics. Panel B presents univariate comparisons between firm-years with at least one female executives
and firm-years with no female executives. ***, **, * indicate significance at p < 0.01, p<0.05, p<0.10 (two-tailed),
respectively. All variables are defined in the Appendix.
32
Table 3: First-stage IV probit and PSM logit
Column 1 of this table reports results from a first stage IV probit for the firms likelihood of having a female top-paid
executive in the year. The instrument Congress Ratio jt measures the female proportion of delegates elected to the House
and Senate in the state where the firm is headquartered. The z-statistics for the probit estimates (reported in parentheses)
are based on standard errors clustered at the firm level. Column II of this table reports results from a first stage propensity-
score matching (PSM) logit for the executives likelihood of being a female. The z-statistics for the logit estimates
(reported in parentheses) are based on standard errors clustered at the executive level. Sample period is 1997-2010. All
non-indicator variables are winsorized at the top and bottom one-percentiles. ***, **, * indicate significance at the p<0.01,
p<0.5, p<0.10 level, respectively. All variables are defined in the Appendix.
N 12,314 93,086
Pseudo R2 0.095 0.100
Prob > 2 0.000 0.000
33
Table 4: Female/Male Flow Compensation Gaps
This table reports results from estimation models that examine executive gender differences in salary and total
compensation levels. Columns 1-2 present results from OLS models. Columns 3-4 include the Inverse Mills ratio from the
first-stage IV probit reported in Table 3 (Column 1). Columns 5-6 present results for the subsample of executive-female-
years and their matched executive-male-years determined by the first-stage propensity score logit reported in Table 3
(Column 2). Columns 7-8 present results after including lagged compensation to the models. All non-indicator variables
are winsorized at the top and bottom one-percentiles. All models include firm and year fixed-effects. The t-values,
reported in parentheses, are based on standard errors clustered at the executive level. The set of firm-level controls include:
Board_Sizejt, % Out_Dirsjt, Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, RET jt-1, Firm Risk jt-1 , CAPEX jt-1, RD jt-1, MBt-1,. ROAjt
and RETjt are included when Total Comp is the dependent variable. ***, **, * indicate significance at the p<0.01, p<0.5,
p<0.10 level, respectively. All variables are defined in the Appendix.
Total Compijt-1 -- -- -- --
34
Table 4 (contd)
Salaryijt-1 -- -- 0.516*** --
(44.39)
Total Compijt-1 -- -- -- 0.383***
(50.23)
35
Table 5: Female/Male Replacements
This table provides multivariate tests for the changes in salary and total compensation levels around a sample of executive
turnovers made of female executives replacing male executives and male executives replacing female executives covering
the same identical titles at the same firm over two consecutive years between 1996 and 2010 in ExecuComp. Columns 1
and 2 report the results of estimations including only the 900 turnovers that involve gender changes, with year fixed
effects. Columns 3 and 4 report estimation results after including a sample of 19,053 executive turnovers occurred within
the same job category at the firm but that did not involve a change in gender. Standard errors are in parenthesis. ***, **, *
indicate significance at the p<0.01, p<0.5, p<0.10 level, respectively.
36
Table 6: Female/Male Equity Incentive Gaps
This table reports results from various estimation models that examine gender differences in equity incentives. Columns 1-
2 present results from OLS models. Columns 3-4 include the Inverse Mills ratio from the first-stage IV probit reported in
Table 3 (Column 1). Columns 5-6 present results for the subsample of executive-female-years and their matched
executive-male-years determined by the first-stage propensity score logit reported in Table 3 (Column 2). Columns 7-8
present results after including lagged equity incentives to the models. Sample period for this table is 1996-2010. All non-
indicator variables are winsorized at the top and bottom one-percentiles. All models include firm and year fixed-effects.
The t-values, reported in parentheses, are based on standard errors clustered at the executive level. The set of executive-
level controls include job titles, tenure and age.The set of firm-level controls include: Board_Sizejt, % Out_Dirsjt,
Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, jt, RETjt-1, jt, Firm Riskjt-1, CAPEXjt-1, RDjt-1, MBt-1,. ***, **, * indicate significance at
the p<0.01, p<0.5, p<0.10 level (two-tailed), respectively. Variables are defined in the Appendix.
37
Table 6 (contd)
38
Table 7: Female/Male Risk Premiums Gaps
This table reports results from the associations between salary and total compensation and lagged equity incentives.
Columns 1-2 present results when salary is the dependent variable. Columns 3-4 present results when total compensation
is the dependent variable. Sample period for this table is 1996-2010. All non-indicator variables are winsorized at the top
and bottom one-percentiles. All models include firm and year fixed-effects. The t-values, reported in parentheses, are
based on standard errors clustered at the executive level. The set of executive-level controls include job titles, tenure and
age.The set of firm-level controls include: Board_Sizejt, % Out_Dirsjt, Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, RET jt-1, Firm
Risk jt-1 , CAPEX jt-1, RD jt-1, MBt-1. ROAjt and RETjt are included when Total Comp is the dependent variable. ***, **, *
indicate significance at the p<0.01, p<0.5, p<0.10 level (two-tailed), respectively. Variables are defined in the Appendix.
Dependent Variable Salary ijt Salary ijt Total Comp ijt Total Comp ijt
1 2 3 4
39
Table 8: Effect of Female Board Representation
This table reports results from estimation models that examine gender differences in flow compensation levels. Columns
1-2 present results from OLS models. Columns 3-4 include the Inverse Mills ratio from the first-stage IV probit reported in
Table 3 (Column 1). Columns 5-6 present results for the subsample of executive-female-years and their matched
executive-male-years determined by the first-stage propensity score logit reported in Table 3 (Column 2). Columns 7-8
present results after including lagged compensation to the models. Sample period for this table is 1997-2010. All non-
indicator variables are winsorized at the top and bottom one-percentiles. All models include firm and year fixed-effects.
The t-values, reported in parentheses, are based on standard errors clustered at the executive level. The set of executive-
level controls include job titles, tenure and age.The set of firm-level controls include: Board_Sizejt, % Out_Dirsjt,
Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, RETj-1t, Firm Riskjt-1, CAPEXjt-1, RDjt-1, MBt-1,. ROA jt and RETjt are included when
Total Comp is the dependent variable.***, **, * indicate significance at the p<0.01, p<0.5, p<0.10 level (two-tailed),
respectively. All variables are defined in the Appendix.
Total Compijt-1 -- -- -- --
40
Table 8 (contd)
Salaryijt-1 -- -- 0.511*** --
(42.53)
Total Compijt-1 -- -- -- 0.381***
(48.72)
41
Table 9: First-Stage IV Estimations for Female Board Representation
This table reports results for first stage IV models that use: 1) the proportion of male board members with connections to
female directors through other boards (Adams and Ferreira, 2009); and 2) the proportion of female board members in the
same industry (2-digit SIC) excluding sample firms, respectively, as instruments for the proportion of female directors on
the board. Sample period for this table is 1997-2010. All non-indicator variables are winsorized at the top and bottom one-
percentiles. All models include firm and year fixed-effects. The t-statistics, reported in parentheses, are based on standard
errors clustered at the firm level. All models include firm and year fixed-effects. ***, **, * indicate significance at the
p<0.01, p<0.5, p<0.10 level (two-tailed), respectively. Variables are defined in the Appendix.
N 18,398 18,398
Adj R2 0.728 0.742
42
Table 10: Effect of Female Board Representation - IV
This table reports results from IV estimation models that examine the effect of female board representation on gender
differences in flow compensation. Columns 1-2 report results using the Adams-Ferreira (2009) instrument of the
proportion of male board members with connections to female directors through other boards. Columns 3-4 report results
using the proportion of female directors in the industry as the instrument. Sample period for this table is 1997-2010. All
non-indicator variables are winsorized at the top and bottom one-percentiles. All models include firm and year fixed-
effects. The t-values, reported in parentheses, are based on standard errors clustered at the executive level. The set of
executive-level controls include job titles, tenure and age.The set of firm-level controls include: Board_Sizejt, %
Out_Dirsjt, Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, RET jt-1, Firm Risk jt-1 , CAPEX jt-1, RD jt-1, MBt-1. ROAjt and RETjt are
included when Total Comp is the dependent variable. ***, **, * indicate significance at the p<0.01, p<0.5, p<0.10 level
(two-tailed), respectively. # indicates significance at p<0.10 level (one-tailed). Variables are defined in the Appendix.
32
Appendix: Variable Definitions
Executive Characteristics:
Femalei = Indicator variable equal to one, if executive i is a female.
Salaryijt = the salary executive i receives at firm j in year t
Total Compensationijt = Sum of the salary, bonus, cashed-in LTIPs, value of stock and option grants and other compensation
executive i receives at firm j in year t
Option Deltaijt = $ change in the executive is wealth for a 1% change in the stock price of firm j in year t (option
grants only).
Option Vegaijt = $ change in the executive is wealth for a 1% change in the standard deviation of returns of firm j in
year t (option grants only).
Age it = Executive is age in year t.
Tenureijt = Executive is tenure at firm j in year t (Executive is tenure in a top-paid position at firm j in year t
when the JOINED_CO field is missing).
CEOijt = Indicator variable equal to one if executive i covers the CEO position at firm j in year t.
Non-CEO Corporate Titlesijt = Indicator variable equal to one if executive i covers at least one non-CEO corporate (CFO, COO,
Other Chief, President, Vice-President, Chairman, Vice-Chairman) role at firm j in year t.
Non-CEO Divisional Titles ijt = Indicator variable equal to one if executive i only covers divisional roles (Divisional Chief President,
or Chairman) at firm j in year t.
Other Titlesijt = Indicator variable equal to one if executive i covers an Other position (e.g., treasurer, secretary)
only at firm j in year t.
MBA i = Indicator variable equal to one if executive i has a MBA degree (matched sample).
Ivy-League i = Indicator variable equal to one if executive i attended an Ivy League school (matched sample).
Firm Characteristics:
32