Equity, Diversity and Inclusion

How big is the corporate gender gap?

Portia Crowe
Finance Reporter, Business Insider
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Gender Inequality

You’ve probably heard that women tend to earn less than men in the workplace.

Researchers writing for the New York Fed’s Liberty Street Economics blog took a look at that gender gap and broke it down into its parts.

The researchers looked at bonuses, stock options, stock grants, salaries, and other forms of compensation, with data from Standard and Poor’s ExecuComp database from 1992 to 2005.

They focused on female vs. male CEOs and chairs, vice chairs, presidents, CFOs, and COOs.

Essentially, they concluded that female executive earn smaller bonuses.

That’s based on three findings:

1. It’s all about incentive pay and bonuses.

Incentive pay makes up a smaller share of female executive’s total compensation than it does for men.

The incentive pay gap accounts for 93% of the gender gap in pay.

The largest gaps the researchers found were in bonuses (women’s total bonuses were 71% of men’s) and “other” incentives (women’s compensation in this category was 68% that of men). Those were followed by stock options, where women earned 84% of what men earned.

2. When times are good, women miss out.

Female executives’ total compensation is also less sensitive to their firm’s performance.

An increase in a company’s value tends to mean a larger increase in a male executive’s total pay than in a female executive’s compensation.

The researchers found that for each 1% rise in a company’s market value, male executive’s compensation would jump by $60,000, while women’s would only increase $10,000.

3. When times are tough, women’s pay gets hit harder.

Female executives’ total pay is also more likely to be affected by a drop in company value.

A 1% drop in company value was found to lead to a 63% drop in female executives’ compensation, but only a 33% drop in male executives’ pay.

The researches found that, from 1992-2005, “pay for female executives cumulatively declined by 16 percent as a result of exposure to changes in firm market value, while pay for males rose by 15 percent cumulatively over the sample period.”

What does it mean?

The failure to explain the differences in pay along gender lines “points to possible distortions in the link between pay and performance”, according to the authors.

That can exacerbate inequality.

That’s why they suggest that, going forward, companies and boards take a closer look at performance pay schemes and increase transparency when making compensation decisions.

This article is published in collaboration with Business Insider. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Portia Crowe is a Finance Reporter at Business Insider.

Image: A woman with a book sits on a bench at the departure area at the Fraport airport in Frankfurt.  REUTERS/Lisi Niesner  

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