The New York Fed has a new paper out on gender differences in executive pay, and it’s downright scary.
Not only do men get paid more in general, but their compensation is usually structured such that they get paid much more than executive women do when their company does well. On top of that—and this is where it gets frightening—the researchers find that female executive pay tends to get docked more when a company does poorly.
“So, roughly, it’s heads men win, tails women lose,” says Matt Levine.
This is how the authors of the paper explain the problem:
First, female executives receive a lower share of incentive pay in total compensation relative to males. This difference accounts for 93% of the gender differences in total flow compensation. Second, the compensation of female executives displays a lower pay-performance sensitivity relative to males. A $1 million dollar increase in firm value generates a $17,150 increase in firm specific wealth for male executives and a $1,670 increase for females. Third, female executives’ pay is more exposed to bad firm performance and less exposed to good firm performance than for males. A 1% increase in firm value generates a 13% rise in firm specific wealth for female executives, and a 44% rise for male executives, while a 1% decline in firm value generates a 63% decline in firm specific wealth for female executives and only a 33% decline for male executives.
The authors control for the fact that women are generally younger, and therefore less senior with lower pay. They also look at whether it’s just because women are more risk averse and tend to spend fewer hours at work than their male counterparts. They find that those aren’t satisfactory explanations for the huge gaps (not to mention the fact that at the executive level, the difference in hours worked between genders is much lower than in the general population).
The authors think that a lot of this disparity can be explained by informal networks, which men have access to to a greater degree than women. Men, they say, are more “entrenched,” which gives them greater bargaining power when negotiating a contract.
The only way to solve this, really, is to increase transparency in pay within an organization. One of the authors of the paper, Stefania Albanesi, told Bloomberg that “increasing transparency in general in an organization but specifically with how your pay is set relative to others in similar positions is going to be helpful.”
This is especially true as people further down the ladder start to get performance-based pay, which has become more popular in recent years. “Our analysis suggest that performance pay schemes should be held to closer scrutiny and raises a note of concern for the standing of professional women in the labor market as incentive pay becomes more prevalent,” the authors write.
Leaning in still doesn’t necessarily get women into the old boys’ network—and it seems like the easiest way to make pay fair is to recognize that and structure organizations accordingly.