Are female executives finally worth more than men?

“Show me the money.” – Jerry Maguire.
The lack of female leaders may not be due to boards’ unwillingness to promote women to the position of CEO.  Rather, it may be the result of women not being promoted while at lower and middle levels of the organization. As the author describes it, the challenge is not a glass ceiling, but rather a sticky floor.

In 2009, Yahoo CEO Carol Bartz received a pay package of $42.7 million, believed to be the largest in history for a female executive.  Bartz was not the only female executive whose compensation raised a few eyebrows.  That same year, Irene Rosenfeld, the CEO of Kraft Foods Inc., received $26.3 million in total compensation, while Indra Nooyi, the chair and CEO of PepsiCo (and Number One on the 2010 Fortune list of the “50 Most Powerful Women”) took home $14.9 million.  

CEO compensation is based on a number of elements, including tenure, the ability of a CEO to return value to shareholders, and the competitive advantage they establish for the firm.  The pay packages above might suggest that Bartz, Rosenfeld and Nooyi are the vanguard of a trend that will see significant increases in compensation for female leaders and that will erase the long history of significant gender pay disparity at the upper echelon level. 

This trend appears to be supported by an examination of pay packages in some of the largest global companies.  According to 2009 data compiled by Bloomberg News, the 16 female CEOs who headed companies included in the Standard & Poor’s 500 Index had earnings that were, on average, 43 percent higher than earnings for males.  These female CEOs also received an annual 19 percent raise, while their male counterparts experienced a 5 percent cut.  And it is worth remembering that all of these salaries and increases were granted during a global recession.

The Glass Ceiling

So, has the glass ceiling finally been broken for female executives – at least from a compensation perspective?    

A recent study in several European countries suggests that it is too soon to make that assertion.[i]  Researchers in Switzerland, the United Kingdom (U.K.) and The Netherlands looked beyond salaries to understand where the really large compensation increases often manifest themselves – in bonuses and other incentives.  They found that for a matched sample of 192 female and male CEOs of British firms over a seven-year period (1998–2004), bonuses and equity-based incentive pay awarded to male CEOs were larger from both an absolute and relative perspective.  In addition, equity-based incentive pay constituted a smaller proportion of the base salary for women than for men.  Overall, and contrary to the female S&P 500 CEOs study, the total remuneration package for female CEOs of the British firms in the study was significantly smaller than their male colleagues’ package, ₤257,000 as compared to ₤316,000.  Therefore, female CEOs in this study experienced two negative compensation trends:  their base salary was lower than their male equivalents, and their opportunity to gain additional compensation through variable pay was hampered because their bonuses were a smaller proportion of the lower salaries than the male CEOs in the sample. 

The European study also found a significant gender difference in the relationship between compensation and organizational performance.  Male CEOs were rewarded with larger bonuses when their company performed well and were punished when they did not.  This expected result conforms to a phenomenon called “the romance of leadership,” which suggests that a firm’s performance – good or bad – is generally attributable to the skills of its leader.  However, this phenomenon may apply more to male leaders, as the female CEOs in this study were neither rewarded nor penalized for firm performance. 

The gender difference in variable pay may be related to other gender-based characteristics.  Research has demonstrated that men are more confident in their abilities, and weigh their compensation more heavily on performance-based outcomes.  Women are less confident in their abilities, particularly in science and math.  The lack of confidence in these areas may have a spill-over effect on the management realm, particularly finance.  As a result, women can be more risk averse, which may explain their preference for generally avoiding performance-based compensation contracts.  These preferences are not correlated to actual ability.  Both genders are equally as likely to achieve their performance goals, which due to variable preferences, translates into strong positive and negative performance linkages for men, and a more muted performance impact for women.[ii]   

It is important to note that these traits cannot be indiscriminately assigned to all men and women; in all likelihood, they are context and situation specific.  However, we are able to see a trend when we examine the top women in the S&P 500 group of CEOs.  At Kraft, Rosenfeld was awarded a 41 percent raise in 2009, even though the company’s shares lagged the S&P 500’s performance by 21 percentage points.  Similarly, Debra Cafaro, who has served as the CEO of real estate investment trust Ventas Inc. since 1999, took an 18 percent pay cut in 2009, even though Ventas has been the best- performing stock in the S&P 500 – with a 35 percent compound annual return – since Cafaro took over.  

Size matters in CEO compensation

Unfortunately, the trend of increasing compensation for female CEOs in S&P 500 companies appears to be limited to a few, elite CEOs.  This is evident when the examination of CEO compensation is expanded beyond that of just the world’s largest, publicly-held organizations.  In a 2009 survey of 1.1 million CEOs, the U.S. Labor Department reported that female heads of companies earned about 75 percent of the compensation of their male counterparts.  This result is not surprising; according to Catalyst, a global nonprofit organization dedicated to expanding opportunities for women in business, there has been a 20 percent compensation gap between men and women at all levels for the past 20 years. 

Top jobs:  Women needed

For those who study female leaders, the problem is broader than a disparity in compensation; there is also a lack of women in top management positions.  In the United States last year, only a quarter of all CEOs were women and of that group, only 2.4 percent headed Fortune 500 companies.  This was despite the fact that women accounted for almost half of the workforce (46.7 percent).  In Canada, the trends were comparable, with 3.6 percent of the Financial Post 500 companies run by women, even though women made up 47.3 percent of the workforce. 

Interestingly, the lack of female leaders may not be due to an unwillingness on the part of boards to promote women to the position of CEO.  Rather, it may be the result of women not being promoted while at lower and middle levels of the organization.  Research conducted by Alison Konrad at the Richard Ivey School of Business at the University of Western Ontario, and Margaret Yap from the Ted Rogers School of Management at Ryerson University, found that the challenge was not a glass ceiling, but rather a sticky floor.[iii]   Konrad and Yap tracked the promotions of 22,338 non-unionized employees over five years at a large Canadian company in the information and communications technology sector.  Women tended to be held back at the bottom layers of the organization, where jobs were low paying and generally required lower levels of education.  Those who did make it through to middle management got caught in a “mid-level bottleneck,” where white men had a clear promotion advantage over white women, visible minority women, and visible minority men.  This bottleneck stalls women’s careers at the middle management level and reduces the number of women at senior levels. 

Interestingly, Konrad and Yap found that women don’t experience promotion disadvantages at the highest organizational levels.  However, the rigorous middle-management selection process weeds out only but the most capable women to be considered for top management positions.  Given the large hurdles women must overcome to get to the senior management level, it is not surprising that if women are able to get unstuck from the floor and make it through the bottleneck, they would likely be among the highest performers and most committed to their careers, and thus, attractive candidates. 

Rewarding good management

What can we take from this compensation discussion?  The research tells us that female CEOs will be paid less than their male counterparts in terms of base salary and incentive pay.  They are less likely to be given credit for strong firm performance, although they will also be less penalized for poor firm performance.  And women have a tougher time getting to the C-suite in the first place, as they are either stuck on the bottom floor of the organization or caught in a mid-level, firm bottleneck.

So how can qualified women move into that corner office and be fairly compensated once there?  Part of the solution is recognizing that men and women are different.  While this appears obvious and perhaps simplistic, a recent McKinsey & Company report, entitled “Women Matter 2010,” noted that there were fewer traditional opportunities for female networking both inside and outside formal organizational structures, fewer senior executives that mentor junior women, and minimal skill-building programs aimed specifically at women.  The consultants declared that such realities were detrimental to women who were trying to reach the executive level.[iv]  Organizations such as the Women’s Executive Network in Canada and Ireland, and the Network of Executive Women in the United States are trying to reduce some of these barriers and offer networking and career- development opportunities for senior-level female leaders, all while educating corporations about the strengths of gender diversity.  However, such programs are not widespread and are often restricted to large urban centres or specific industry sectors.

Why the interest now?

If the issue of the gender gap in CEO compensation has been around for 20 years, it’s reasonable to wonder why it has gained such attention as of late.  The high profile of CEOs such as Bartz and Rosenfeld is attracting both research and media attention. The research and attention are in turn expanding the entire conversation about the role of female executives and their influence on decision-making and firm performance.  Influential consulting organizations such as Deloitte and McKinsey have recently released studies that attempt to link gender to firm value, suggesting that hiring female executives is good for a company’s bottom line.[v],[vi]  And, for the first time, the World Economic Forum requested that their strategic partners send one women for every five executives the partners’ sent to the Davos 2011 summit.  This action sent a strong message to the global business community, as the World Economic Forum’s 100 strategic partners includes some of most well-known global firms such as Google, Barclays, General Electric, and Nike, which in turn were selected for their alignment with the Forum’s commitment to improving the state of the world. 

It remains to be seen whether an increased awareness of female CEO compensation will change compensation trends, and indeed the presence of women executives, in organizations of all size.  Perhaps a strong first step would be for boards to adhere to the classic management practice of tying compensation to performance for CEOs of all genders.  This could be achieved by addressing the disparity in incentive pay as a proportion of total CEO compensation, so that it more strongly aligns CEO behaviour with shareholder values, and rewards good performance and disciplines poor performance.  In this way, achievement at the highest management levels is recognized, no matter the gender.

[i] Kulich, Clara, Grzegorz Trojanowski, Michelle Ryan, S. Alexander Haslam, and Luc Renneboog.  (2011) Who gets the carrot and who gets the stick?  Evidence of gender disparities in executive remuneration.  Strategic Management Journal, 32: 301-321.

[ii] Lundeberg, Mary, Paul Fox and Judith Puncochar (1994).  Highly confident but wrong: Gender differences and similarities in confidence judgements.  Journal of Educational Psychology, 86(1): 114-121. 

[iii] Yap, Margaret and Alison Konrad. (2009) Gender and racial differentials in promotion:  Is there a sticky floor, a mid-level bottleneck or a glass ceiling?  Industrial Relations, 64(4): 593-619.

[iv] Desvaux, George, Sandrine Devillard and Sandra Sancier-Sultan. (2010)  Women at the top of corporations:  Making it happen. Women Matter 2010.  McKinsey & Company.

[v] Pellegrino, Greg, Sally D’Amato and Anne Weisberg.  (2011)  The gender divided:  Making the business case for investing in women.  Deloitte Touche Tohmatsu Limited.

[vi] Desvaux, George, Sandrine Devillard and Sandra Sancier-Sultan. (2010)  Women at the top of corporations:  Making it happen. Women Matter 2010.  McKinsey & Company.


About the Author

Karin Schnarr will receive her PhD in Strategy and Corporate Governance in 2013 from the Richard Ivey School of Business at the University of Western Ontario.