HBR

We know female CEO’s get paid more, but we don’t know why

by Margaret Ormiston and James R. Bailey

March 15, 2017 | 10:20 am
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Last spring Equilar, an executive compensation firm, released a headline-making study on gender and CEO pay. In a survey of 341 Standard & Poor’s 500 companies, it found that the 17 female chief executives in the group made nearly $8 million more on average than their 324 male counterparts. Some in the media responded with shock and excitement, while others cautioned about the report’s small sample size. But these findings are supported by two rigorous academic studies: One found that women who hold senior management positions earn up to 10% more than their male peers. Another found not only that female CEOs are paid more than male CEOs but also that nonwhite CEOs (African-American, Asian, Hispanic and Native American ethnicities) are paid more than white CEOs.

These findings are fascinating, but it’s way too early to declare victory (on the one hand) or reverse discrimination (on the other). For one thing, decades of research continues to demonstrate that women and minorities make less than white men doing equivalent work. Even when focusing on other positions in the executive ranks, those discrepancies remain, as highlighted by this study, published just last month in The Wall Street Journal.

We need more information to know what’s different at the CEO level. It’s entirely possible that these individuals are simply better at their jobs, and thus worth more. It may be that the companies with female and minority CEOs have progressive policies that promote and reward nonwhites and nonmales. Yet another possible explanation is a simple supply-and-demand effect: If the supply of qualified female and minority chief executives doesn’t match the demand, or isn’t perceived to match it, then their compensation will be higher.

A cynical but plausible explanation comes from research on moral and ethical behavior. It’s reasonable to wonder whether companies pay female and minority CEOs a premium, at least in part, to right past wrongs and improve the company’s image (known as moral cleansing) or to ensure that any morally dubious actions taken in the future won’t do as much reputational damage (known as strategic moral licensing).

Although all this might seem speculative, some research lends credence to the theory. Research has shown, for example, that the presence of women in a company’s C-suite is associated with fewer women subsequently being hired to high-level positions in that organization. Perhaps this occurs because decision makers, consciously or unconsciously, feel that the presence of one, two or three senior female leaders signals that they’ve “done enough” for diversity.

We don’t want to rain on the parade of those encouraged by the CEO pay findings. But there is still much more progress to be made in making senior leadership teams more diverse and equalizing pay between men and women, and whites and nonwhites, at all levels in organizations.


by Margaret Ormiston and James R. Bailey

March 15, 2017 | 10:20 am
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