When women hold top leadership positions in a company, it creates a female-friendly culture. For example, it helps improve the motivation of women in managerial roles, highlights females as leadership role models, and promotes mentoring or social networking for women. However, it is unclear how having women in high positions – such as CEO – influences the salaries of those in other top management positions.
EFFECTS OF CEO GENDER ON TOP MANAGER PAY
Researchers (Dezső et al., 2022) used publicly available data that tracked over 3,000 firms across more than 20 years. They compared the total compensation (salary, bonuses, stock options, etc.) of each company’s CEO and its four highest-paid managers. They found that a female top manager earned approximately 16% less in a given year when she had a female CEO, versus what she would have earned if the CEO at the same firm had been male. Interestingly, there was no difference in compensation for male managers based on their CEO’s gender.
Additionally, the authors found that the relationship between CEO gender and the compensation of top female managers may be due to a “loss of diversity benefits.” In other words, firms that have established diversity goals, or those who otherwise feel pressured to increase diversity, are often willing to pay a premium to attract, hire, and retain women in their top management teams. However, having a female CEO may fill this diversity need and cause other women in top management positions to appear redundant. Thus, the company may be less willing to pay the same amount to hire women in these roles as they would have if the CEO was male.
PRACTICAL APPLICATIONS FOR ORGANIZATIONS
The researchers suggest that companies consider the potential side effects of diversity initiatives and proactively adjust their decision making. They also stress the importance of ensuring that all top managers are equitably assessed and compensated accordingly. By providing adequate and fair compensation to female managers, firms can retain women in these positions and maintain diverse representation in their top management teams.
Dezső, C. L., Li, Y., & Ross, D. G. (2022). Female CEOs and the compensation of other top managers. Journal of Applied Psychology. Advance online publication.