Pay inequality and gender dynamics in top executive positions

Abstract

AbstractResearch Question/IssueContributing to ongoing debates on the determinants of diversity at the helm of companies, we investigate the relationship between executives' gender and pay inequality within the top executive team.Research Findings/InsightsUsing a panel data set of US listed firms, we find that a greater inequality in executive pay is positively associated with the exit of female executives from the firm's top executive team. This effect is economically larger when the starting level of female representation in the executive team is low, when the firm uses more variable compensation to reward executives, and when the firm operates in geographic areas featuring stronger aversion toward income inequality.Theoretical/Academic ImplicationsOur study expands existing knowledge on the organizational and external factors promoting gender diversity at the top of companies. Although this literature has widely analyzed women's entry into corporate positions, exit has been largely neglected. Our study fills this gap by documenting significant gender differences in the relationship between executives' pay inequality and exit from the top executive team. In so doing, we connect the literatures on gender diversity and executive pay distribution, which have developed in a rather independent manner.Practitioner/Policy ImplicationsDrawing on insights from corporate governance and behavioral economics, this study offers novel evidence to policy‐makers interested in addressing the under‐explored challenges associated with the retention of women in corporate positions and their upward mobility within the corporate hierarchy. Moreover, the contextual variations behind our main finding suggest that cultural values and norms may play a key role in shaping the effectiveness of public policies aimed at increasing diversity in corporate governance positions.