Abstract
Women have traditionally been underrepresented on boards of companies, but after some social and legal pressure their presence has been increased during recent years. This paper examines the relation of the presence of female directors both at board meetings and at audit and remuneration committees, with CEO pay and the shareholders' consultative vote on managerial remuneration plans (“say on pay”). Using a large sample of Spanish firms listed between 2011 and 2015, our study reveals that firms with female representation on their remuneration committee, display lower levels of CEO pay and CEO pay growth. We also obtain evidence that this effect is attributable to the proprietary female directors. Additionally, from the “say on pay” perspective, female membership of the remuneration committee is associated with a lower number of votes in terms of director remuneration reports and related policies. Overall, our results indicate that female directors on the remuneration committee contribute to a moderation of executive remuneration growth and are consequently perceived by shareholders as valuable resources in the design of executive remuneration plans. This confirms the influence of the minority group, females, in the sustainable progress of these companies. Our results support the presence of female directors not only as a social measure or tokenism, but also as a contribution to good governance practice.
Highlights
Cultural, gender and racial composition of boards of directors are counted amongst the most relevant concerns for managers, shareholders, and directors of major corporations (Carter et al, 2003)
The quota system has been a matter of discussion due to their convenience and acceptability when dealing with meritocracy (e.g., Moscoso et al, 2012), as it could be seen as a tokenism and/or as granting less value
In this study we have focused on the role played by female directors on boards and remuneration committees when designing and implementing chief executive officer (CEO) incentive schemes
Summary
Gender and racial composition of boards of directors are counted amongst the most relevant concerns for managers, shareholders, and directors of major corporations (Carter et al, 2003). In 2003 the Norwegian parliament passed a law requiring 40 per cent of corporate directors in listed companies to be women (Rose, 2007) Other countries such as Belgium, France, Germany, Iceland, India, Israel, Italy, and Spain use some forms of quota system to improve female representation on the boards of listed firms. Based on historical disadvantages and to offer an opportunity to “rebalance” the society, the Spanish Organic Law 3/2007 on effective equality between men and women has granted large companies 8 years to include a minimum proportion of 40% female directors on their boards This level of presence on the part of female directors has not been achieved so far
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