Bloomberg New York
EVEN top female workers cannot catch a break when it comes to pay inequality.
Researchers at the Federal Reserve Bank of New York are out with a new paper on gender differences in compensation for executives. They analysed pay for chairs/chief executives, vice-chairs, presidents, chief financial officers and chief operating officers, and here is what they found: Female executives get less incentive pay compared to their male counterparts.
About 93 percent of the difference in total pay between male and female executives is rooted in incentive pay, particularly the value of stock options and grants, the researchers found. This was the case even after the economists controlled for things such as differences in title, tenure and age.
Incentive pay includes things like bonuses and company equity and is meant to encourage executives to boost corporate performance.
Incentive pay leads to the build-up of what the authors call “firm-specific wealth”, as it accumulates on past years’ flow of stock options and grants. Even small changes in a company’s stock price can lead to big swings in the value of this type of compensation. As a result, female executives’ compensation is less sensitive to company performance.
For example, if a company’s value climbs by $1 million, a male executive’s firm-specific wealth jumps by $17 150. For women, the increase is just $1 670, or less than a tenth.
This makes sense in the context of the previous finding, because their incentive compensation tied to the company’s equity tends to be lower. Even so, females are more exposed to a decline in a company’s market value and benefit less from an increase.
A 1 percent decline in firm value translates into a 63 percent drop in firm-specific wealth for female executives, compared with only a 33 percent decrease for male executives. Similarly, a 1 percent rise in a company’s value corresponds to a 44 percent rise for male executives, and only a 13 percent increase for women.
“Overall, changes in firm performance penalise female executives while they favour male executives,” the paper states. And lest you think females were being punished through pay because they were more likely to run their companies into the ground, “there are no significant differences in firm performance by gender,” the researchers found.
The root of the problem may be illuminated by an idea in corporate finance literature known as”managerial power”.