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Executive gender pay gaps:

The roles of female risk aversion and board representation

Mary Ellen Carter*


Carroll School of Management
Boston College
maryellen.carter@bc.edu

Francesca Franco
London Business School
ffranco@london.edu

Mireia Gine
WRDS, The Wharton School
IESE Business School, Universidad de Navarra
MGine@iese.edu

Abstract

Using a large sample of executives in S&P1500 firms over 1996-2010, we document significant salary
and total compensation gaps between female and male executives and explore two possible
explanations for the gaps. We find support for greater female risk aversion as one contributing factor.
Female executives hold significantly lower equity incentives and demand larger salary premiums for
bearing a given level of compensation risk. These results suggest that females risk aversion
contributes to the observed lower pay levels through its effect on ex-ante compensation structures. We
also find evidence that the lack of gender diversity on corporate boards affects the size of the gaps. In
firms with a higher proportion of female directors on the board, the gaps in salary and total pay levels
are lower. Together, these findings suggest that female higher risk aversion may act as a barrier to full
pay convergence, despite the mitigating effect from greater gender diversity on the board.

JEL Classification: J31; J33; J71


Keywords: Female executive pay; Risk aversion; Board diversity; Corporate governance.

*
Corresponding author. We gratefully acknowledge the financial support of Boston College (Carter), PwC INQuires Grant
(Carter), London Business School (Franco) and WRDS (Gine). We appreciate the helpful comments from Aiyesha Dey,
Tim Gray, the editor, two anonymous reviewers, and seminar participants at Duke University, Harvard Business School,
HEC-Lausanne, Lancaster University, Rotterdam University, London Business School, the 2013 University of Colorado
Summer Accounting Conference, and the 2013 European Accounting Association Annual Meeting.
1. Introduction

Practitioners assert that female executives systematically receive lower pay levels than their

male counterparts (e.g., Catalyst Research, 19992013; Hay Group, 2015). Regulators, for their part,

have begun discussing reforms to mandate equal-pay reviews and public disclosures of gender pay

gaps by firms (Lipman, 2015; OConnor, 2015). 1 Yet the academic evidence substantiating these gaps

is mixed. Moreover, the reasons for why female executives might receive lower pay levels remain

unclear. Proposed explanations include female executives segregation in smaller firms or lower paid

positions, greater reluctance to take income risk or engage in pay negotiations, social norms and

gender discrimination (Hymowitz, 2008; Boulton, 2010; Sorkin, 2013; Cadman, 2015). We revisit

these questions by examining the existence of gender pay gaps among U.S. top executives and

investigating the roles of higher risk aversion among women and the lack of gender diversity on

corporate boards as possible channels for the gaps. If the gaps are due to higher risk aversion, we

should observe this effect in the incentive intensity of female executives compensation contracts. If

the pay gaps are related to different social and governance mechanisms when the board is

predominantly comprised of males, the gaps should be mitigated with greater female representation on

the board. While gender diversity in the boardroom has been shown to influence corporate governance

practices, there has been little research on the impact of board gender diversity on executive pay.

Using a sample of executives from ExecuComp from 19962010, we first document that

female executives receive significantly lower salary and total compensation levels compared to male

executives. After controlling for job responsibilities and other personal- and firm-level determinants

of pay, we find salary and total compensation gaps of about 7% and 15%, respectively. Next, using

the sensitivity of the executives option holdings to stock-price changes (delta) and volatility (vega) as

1
President Obama signed a presidential memorandum in 2014 instructing public companies and federal contractors to
report wage information by gender and race to the Department of Labor. On July 2015, the U.K. government launched a
new regulation proposal requiring companies with 250 or more employees to publicly report their gender pay gaps. Other
European Union countries, including Austria and Belgium, already have similar rules.
1
measures of compensation risk, we investigate whether female executives hold different levels of

equity incentives and whether these differentials impact ex-ante compensation contracts. Consistent

with greater risk aversion, we find that female executives hold significantly lower equity incentive

levels compared to males and that females demand larger risk premiums for bearing a given level of

incentives. These premiums are more likely to take the form of additional salary rather than new

equity. Together, these results suggest that female executives higher risk aversion contributes to

lower pay levels (and larger pay gaps) through its effect on the risk profile of the pay packages female

executives accept. Investigating the effect of board gender diversity, we find that greater female

representation on the board and on the compensation committee is associated with lower pay gaps for

female executives. For firms with sample average female board representation, the gender pay gap for

total compensation is reduced by 5% from a 21% gap for firms with no females on the board. These

findings are robust to analyses addressing concerns of female board representation being endogenous

to the firms compensation practices. Together, these results suggest that pay gaps stem, at least

partially, from some form of gender bias in the boardroom or less effective corporate governance

when there are fewer females on the board.

A challenge in documenting the existence of executive gender pay gaps is establishing the

counterfactual pay ratethat is, the pay female executives would have earned had they been males,

all else equal. This challenge is particularly important when considering that at least part of the pay

gaps could stem from unobservable factors impacting female executives selection in specific jobs,

firms, or industries as well as unobservable gender differences affecting pay, such as differences in

human capital or career commitment. We attempt to address concerns that selection bias or omitted

characteristics influence our results. While all our analyses include firm fixed-effects to control for a

firms time-invariant unobservable demand for female executives, we perform several robustness

tests. First, we control for the firms likelihood of having a female executive to address concerns

2
about a systematic segregation of females in specific types of firms. We instrument a firms likelihood

of employing a top-paid female executive with a state-level variable that measures the female

proportion of state delegates elected to the House and Senate in the year. As an alternative approach to

account for endogenous selection, we use propensity-score matching to pair the female executives in

our sample with a subsample of male executives most similar in firm- and executive-level

characteristics. For this subsample of matched pairs, we further collect educational data to rule out the

effect of differences in educational attainment. Third, we include prior year pay and incentives as

additional controls in our models to capture the effect of other unobservable executive-specific

characteristics affecting pay. Our conclusions for the existence of pay and incentive gaps and the

mitigating effects of female board representation are robust to all these alternative specifications.

We make the following contributions to the literature. While the popular press is replete with

articles discussing gender pay gaps, academic evidence on the topic is mixed. Using a variety of tests

and methodologies, we provide evidence that female executives receive significantly lower salary and

total pay levels, which informs the contemporaneous discussions about gender pay gap disclosures.

Second, we provide evidence on the effects of two channels contributing to the gender pay gaps:

female higher risk aversion and the lack of gender diversity in the boardroom. By doing so, we

complement the compensation literature on the effect of gender-specific preferences for compensation

risk and incentives (e.g., Graham, et al., 2013; Brenner, 2014). We provide evidence that female

executives higher risk aversion contributes to the observed pay gaps by affecting ex-ante pay

structures. And, we complement the literature on executive overconfidence, as lower risk aversion is

assumed to be associated with overconfidence through greater at-risk pay (Malmendier and Tate,

2005). Finally, we add to the corporate governance literature on the consequences of board gender

diversity (e.g., Adams and Ferreira, 2009; Matsa and Miller, 2011; Ahern and Dittmar, 2012), by

testing the effects of female representation on a particular aspect of governance, executive

3
compensation and pay gaps between female and male executives. These results inform the recent

European Union reforms mandating gender diversity quotas on corporate boards (Lublin, 2012).

The remainder of the paper is structured as follows. Section 2 summarizes the related literature

and develops our research questions. Sections 3 and 4 describe our sample and research design.

Section 5 presents our results for the existence of executive gender pay gaps and the roles of female

risk aversion and board gender diversity in affecting the gaps. Section 6 concludes.

2. Background literature and hypotheses

Our research relates to three streams of literature. We start by summarizing the literature on

executive gender pay differentials since our first objective it to establish whether gender pay gaps

exist among the top-paid executives in our sample. 2 We next review the studies on gender-specific

risk preferences since they relate to our predictions on the role of female risk aversion as a potential

determinant of the gaps. Finally, we review the research on gender discrimination and corporate board

gender diversity to motivate our predictions on the mitigating effect of female board representation on

the size of the gender pay gaps.

2.1. Executive pay differentials

Past research on gender differences in pay levels among executives presents mixed results. In

early work, Bertrand and Hallock (2001) report significant executive gender pay gaps (about 13% in

total pay) using a sample from ExecuComp over the 19921997 period and after controlling for job

titles, firm size, performance, industry or firm fixed-effects. Their tests indicate that a systematic

segregation of women into lower-paying occupations and smaller companiesbut not into lower-

paying industriesaccounts for a sizable fraction of the gaps. After controlling for age and tenure,

however, the coefficient on their female indicator remains negative but is no longer significant. They

2
There is a large economic literature on gender pay differentials. In this section, we discuss studies examining gender pay
gaps across top executives at S&P1500 firms, as they are most comparable to our study.
4
conclude that there are not significant executive gender pay gaps over their sample period. One

explanation for this lack of significance is the very low proportion of females in their sample (about

2.5% of the executive-firm-years) and the severe sample attrition (about 82% of their original sample)

when they include executive age and tenure in their models. We extend the results of Bertrand and

Hallock (2001) by covering a much longer time-series (15 versus 6 years only) and exploiting a higher

female sample representation (6% versus 2.5%), which adds statistical power to our tests. We also

hand-collect age data for sample executives and control for endogenous selection of females into

specific types of firms with IV and propensity-score matching.

Muoz-Bulln (2010) revisits the findings of Bertrand and Hallock (2001) over a longer

period (19922006) and finds that females earn lower total pay after controlling for tenure, job title,

firm size, and performance. His measure of total pay is ex-post total compensation, which includes

cash payouts from stock-option exercises. When examining salary, he finds that the coefficient on the

female indicator is negative but not significant. He concludes that there are not significant gender gaps

in salary levels and that ex-post variable pay is the most important driver of the gap in total pay.

Consistent with this interpretation, he finds that the value of the exercised stock options is

significantly lower for female executives. He proposes alternative mechanisms for these results,

including women having higher risk aversion, being less able to time their option exercises using

private information, or being less willing to re-price underwater options, but does not test them. 3 In

our analyses, we consider whether the pay gaps relate to risk aversion through ex-ante contracting. By

focusing on ex-ante pay packages, that is, the options awarded and held by the executive rather than

exercised, we test the effect of female risk aversion at the initial granting stage and estimate pay gaps

that are unaffected by gender differences in option-exercise behavior. Muoz-Bulln (2010) also does

not control for unobservable employer or executive traits, nor does he address selection concerns.

3
Results in Huang and Kigsen (2015) support these explanations. Male executives are more likely to hold stock options
that are deep in the money, more likely to hold options until expiration, and more likely to buy stock in the company. The
authors interpret these statistics as evidence of male executives higher confidence.
5
Finally, Bugeja, Matolcsy, and Spiropoulos (2012) investigate gender pay gaps among U.S.

CEOs over 19982010 using propensity-score matching. They match 210 female CEOs to males in

firms most similar in industry, size, board size, and percentage of female directors and find no

significant differences in salary or total pay. They conclude that female CEOs dont receive

significantly lower pay levels than males. In our study, we include non-CEO executives and

investigate the existence of gender pay gaps across the entire corporate suite. This approach allows us

to estimate pay gaps on a much larger sample of individuals, thus exploiting higher cross-sectional

variation in personal and firm characteristics expected to affect executive pay. Moreover, even if the

wage gaps are significantly reduced as women reach CEO positions, it is still important to document

the existence of pay differentials at career stages that precede promotions to CEO positionsor the

lack thereof. Providing evidence on gender pay gaps for all executives also bears on the understanding

of whether the wealth accumulation executives experience through their career progressions towards

CEO positions at their firms differs by gender.

2.2. Gender and risk aversion

Within the principal-agent framework, a risk-averse manager will prefer less income risk and

accept lower levels of incentive pay. According to these predictions, a managers pay-performance

sensitivity will be higher when he or she is more capable of improving the distribution of the firms

payoffs (through, for example, greater responsibilities) or because the executive is less risk-averse.

Consistent with this result, in recent survey work, Graham, Harvey, and Puri (2013) document that

CEOs with less appetite for risk are less likely to accept pay packages that have greater proportions of

stock, stock options, and bonus pay. Coles and Li (2012) reach similar conclusions, finding significant

associations between portfolio deltas and vegas executive fixed-effects and proxies for risk tolerance.

Their results suggest that more risk-averse managers are likely to be subject to less equity risk through

lower deltas and vegas. In a theory work, Goel and Tackor (2008) confirm these predictions.
6
Across a variety of methodologies, economic research also finds systematic differences in risk

preferences between males and females. In reviewing the large body of experimental work, Croson

and Gneezy (2009) and Bertrand (2010) conclude that the literature supports the assertion that females

are more risk-averse than males. Females are less likely to choose gambles and more likely to choose

piece-rate pay over tournaments (i.e., pay conditional on the performance of others), even when their

abilities would suggest otherwise (Gneezy et al., 2003; Gneezy and Rustichini, 2004). 4 Consistent

with this evidence, gender (female) has been used in accounting research to capture potential higher

risk aversion (e.g., Ge, Matsumoto, and Li, 2011; Hodge et al., 2009).

Few studies have investigated the effect of gender on the incentive profile of executive

compensation packages. In their survey, Graham et al., (2013) find that female CEOs, on average, are

less likely to accept riskier pay packages. Brenner (2014), using option exercise data, documents

greater implied risk aversion for female executives relative to males. However, no study examines

whether female executives lower preferences for risk translate in lower equity incentives. This leads

to our first research question of whether gender differences in risk aversion lead to lower equity

incentives for female executives. Moreover, if risk aversion affects pay structures ex-ante, female

executives will likely require greater risk premiums for bearing an existing level of incentives. We

thus also expect female risk aversion to contribute to lower total compensation levels (and greater

gender pay gaps) if the risk premiums female executives demand come in the form of additional

safe pay (i.e., salary) rather than new equity grants.

4
This tendency, however, depends on the gender composition of the environment and is lower in settings in which female
representation is higher. Gneezy et al. (2003) find evidence that females compete more effectively against other females.
Gneezy, Leonard, and List (2009) study the effect of culture on the choice of payment structures and find that females in
patriarchal (matriarchal) societies choose competitive pay structures with significantly lower (higher) frequency than
males. They interpret this as evidence that culture and the gender composition of the environment, in particular, matter.
7
2.3. Gender diversity in the board

A first channel through which gender-diverse boards can affect the size of the executive

gender pay gaps comes from theories of gender discrimination. Altonji and Black (1999) summarize

two economic theories: a) taste-based discrimination in which members of a majority group (males)

are prejudiced against members of a minority group (females), and b) statistical discrimination in

which members of the majority group (males) apply a heuristic to the expected productivity of the

minority group (females) based on negatively-biased assumptions about their attributes (e.g., skills).5

Both theories predict that, in equilibrium, members of the minority group, even if equally skilled, will

receive lower wages and that the relative size of the minority group attenuates the wage gaps (i.e.,

collective action can affect discriminatory outcomes). Social psychologists have tested these

predictions in the context of females reaching top managerial positions (e.g., Heilman, 2001; Eagly

and Karau, 2002; Lyness and Heilman, 2006). Together, these theories suggest that the pay discounts

for female executives can be mitigated in gender-diverse boards since female directors will less likely

discriminate other females based on prejudices or assumptions about lower expected productivity.

A second channel through which gender board diversity may affect pay gaps is through better

governance. Hillman et al. (2007) and Adams and Ferreira (2009) provide evidence that having

females on boards enhances oversight and monitoring by promoting better board attendance and

greater accountability for managers. Srinidhi et al. (2011) suggest that gender board diversity is

associated with higher earnings quality. Gul et al. (2011) find evidence that gender-diverse boards

have more informative stock prices, potentially resulting from higher quality discussions in the

boardroom. Consistent with these views, McInerney-Lacombe et al. (2008) and Joy (2008) suggest

that the presence of female directors brings more informed deliberations. Based on these arguments,

5
Altonji and Black (1999) summarize a third theory of occupational segregation in which females make different
investments in human capital. Occupational segregation is not likely to be as prevalent in our setting because we limit our
analyses to executive positions, and we control for job titles to the extent that some executive roles are more likely to be
occupied by females (e.g., divisional titles vs. CEO).
8
gender-diverse boards may bring about better monitoring, which can lead to less gender inequality in

the executive pay setting process. However, few governance studies have examined whether gender

diversity in the boardroom influences executive pay and gender pay gaps in particular.

Adams and Ferreira (2009) find evidence of greater CEO performance-related turnover in the

presence of boards with greater female proportions, but they find no evidence that board gender

diversity affects the level or form of CEO pay. Ahern and Dittmar (2012) exploit a Norwegian law

implemented in 2003 that requires 40% female board representation. They also find no evidence that

greater female representation alters the level of CEO pay. One explanation for their lack of results is

that female directors may have no influence on pay packages for executive positions typically filled

by males. 6 In addition, these studies do not consider the gender of the executive, thus they are silent

on the existence of gender pay gaps and on the role of female directors in affecting the gaps.

Matsa and Miller (2011) examine the effect of female board representation on the proportion

of female executives employed at the firm. Using board data over 19972009, they document that the

proportion of females on the board is positively related to the likelihood of having a female CEO and

to the proportion of executive positions held by females. The authors also find a positive correlation

between the proportion of total executive compensation paid to female executives, as an alternative

measure of female executive employment, and female representation on the board. However, they do

not test whether female executives are paid less than males for covering similar jobs titles at their

firms. 7 Finally, Elkinawy and Stater (2011) examine gender differences in executive compensation

levels and the effect of male board representation on such differences. Using Execucomp and

6
Another explanation for the lack of findings by Adams and Ferreira (2009) is that their female board representation
variable lacks power. In our sample period, we may likely find greater effects because of board composition changes
introduced by the Sarbanes-Oxley Act in 2002 and the subsequent NYSE-NASDAQ-AMEX listing rules in 2004. These
regulatory changes required outside board members to serve on standing committees. If the new pool of candidates for
outside board positions includes more female directors, the increased presence of females on the board may have greater
effects on the firms executive pay packages.
7
Alternative gender dynamics are tested by Newton and Simutin (2014), who investigate the association between the
CEOs gender and pay levels of other non-CEO executives. They find that executives of opposite gender than the CEO
have lower pay levels and that this effect is greater when the CEO (non-CEO executive) is a male (female). Our study
differs in that it examines the effect of the gender composition of the board.
9
RiskMetrics data over the period 19962004, they find that all executives receive relatively lower

salaries in male-dominated boards and that the discount is stronger for female executives. However,

they do not find significant effects for total compensation levels. We consider a later time-series when

female board representation is higher. We also control for female executives selection with IV and

propensity-score matching estimations and address concerns relating to female board representation

being endogenous to the firms executive compensation policies.

Together, these streams of research motivate our second research question of whether female

representation on the board affects the executive gender pay gaps. Although we cannot distinguish

between the channels of reduced statistical or taste-based discrimination against women or improved

board functioning and monitoring, we predict that greater female representation on the board leads to

lower pay gaps for female executives.

3. Sample selection and variable measurement

We begin our sample selection with all executives in ExecuComp over the period 1996-2010,

with 1996 being the first year that RiskMetrics data on board characteristics are available. We

describe our initial sample in Table 1. Out of the 165,774 executive-years in ExecuComp, only 9,832

(about 6%) are female executive-years (for 2,174 unique female executives). The remaining 155,942

are male executive-years (for 32,105 unique male executives). Table 1 Panel A provides descriptive

statistics on two sets of executive characteristics. The first set includes measures for the executives

salary, total compensation (sum of salary, bonuses, long-term-incentive payouts, value of the

restricted shares and stock option grants for the year, and any other annual pay), and equity incentives.

We follow prior literature (e.g., Guay 1999; Core and Guay, 2001; Coles et al., 2006) and measure

executive equity incentives as the deltas and vegas of the option portfolio held by the executive in the

year. Option deltas measure the change in the value of the executives option portfolio for a 1%

10
change in the firms stock price; option vegas measure the change in the value of the executives

option portfolio for a 1% change in the standard deviation of the firms stock returns.

The second set of executive characteristics includes the executives age, tenure and job titles at

the firm. Since age fields are not consistently reported in ExecuComp for most executives, we back-

fill the age fields for all executives reporting at least one non-missing age field over our sample period

and hand-collect the age for the remaining female executives missing age in all years. This approach

allows us to avoid the severe sample attrition in Bertrand and Hallock (2001) due to missing age

fields. We identify job titles using the Title text field in ExecuComp. The descriptions reported in

the field are up to 30 characters long and correspond most closely to the titles listed by the firm in the

summary compensation table of its DEF 14A filing with the SEC. Since executives often cover more

than one job title in the year, we use the field to extrapolate the list of different titles covered by the

executive. Differently from Bertrand and Hallock (2001), we extrapolate an executives job titles

using the entire text description, not just the first two reported titles, and flag the following titles:

CEO, CFO, COO, Other Chief (e.g., CMO, CAO), President, Vice-President, Chairman, Vice-

Chairman, Divisional President, Divisional Chief, Divisional Chair, and Any Other Title. 8 We then

follow an approach similar to Aggarwal and Samwick (2003) and aggregate the executive titles into

job categories aimed at capturing different levels of executive responsibilities. Aggarwal and

Samwick (2003) show that pay differentials across executives are a function of the corporate versus

divisional type of executive responsibilities. 9 Following a same logic, we aggregate the executive job

titles in four, mutually exclusive, categories: CEOs; executives covering other non-CEO corporate

positions (i.e., CFO, COO, Other Chief, President, Vice-President, Chairman, Vice-Chairman);

executives with divisional titles only (i.e., Divisional President, Divisional Chief and/or Divisional

8
Bertrand and Hallock(2001) code executive job titles (i.e., CEO/Chair; Vice-Chair; President; Vice-President; Executive
Vice-President; Senior Vice-President; Group Vice-President; CFO; COO; Other Chief Office; and Other title) based
on the first two job descriptions listed in the Title field in ExecuComp.
9
Aggarwal and Samwick (2003) show that executives with divisional responsibilities have typically lower pay-
performance sensitivities than non-CEO corporate executives, who in turn have lower sensitivities than CEOs.
11
Chair with no other corporate positions); and executives with other job titles (i.e., any title other than

the eleven job categories listed above). 10

Table 1 Panel B compares characteristics of female and male executives. Female executives

earn, on average, salary and total compensation levels that are significantly lower than males (about

14% and 24% lower). Female executives also hold average equity portfolios with lower deltas and

vegas (about 39% and 32% lower). Consistent with Bertrand and Hallock (2001), we find that female

executives are, on average, 4 years younger and have tenures at their firms that are 1.5 years shorter

than males. 11 Female executives are less likely to be CEOs (6% versus 18% for males) but more likely

to hold other non-CEO corporate positions (59% versus 54% for males). Across non-CEO corporate

titles, females are less likely to cover top roles such as the Chairman or Vice-Chairman, but more

likely to cover the Vice-President, CFO, and/or Other Chief positions. 12 Female executives are also

more likely to hold divisional titles (31% versus 25%), and other titles (3.6% versus 2.5%). These

statistics reinforce the importance of controlling for the type of job responsibilities when examining

gender differences in pay levels and incentives.

Table 2 Panel A provides summary statistics on the set of firm-level characteristics used in

our tests. The sample includes 19,451 firm-year observations with available data on the standard

economic determinants of pay and incentives (e.g., Gaver and Gaver, 1993; Core et al., 1999; Bizjak

et al., 1993; Guay, 1999; Core and Guay, 1999; Coles et al., 2006). The firm-level variables include

board characteristics (board size and the proportion of outside directors), and other variables

measuring firm size (natural log of sales), leverage, performance (return on assets and stock returns),

risk (log of variance of stock returns), capital and R&D expenditures, and growth opportunities
10
The sum of the percentages for the eleven job titles exceeds 1 because executives often cover more than one title in the
year. By construction, the sum of the percentage for the four, mutually exclusive, aggregate job categories (i.e., CEO,
Non-CEO Corporate Titles, Divisional Titles, Other Titles) equals 1.
11
We measure tenure as years since the executive joined the company (JOINED_CO field on ExecuComp) or, if missing,
the number of years the executive appears on ExecuComp at the firm. Our conclusions are unchanged if we measure
tenure as the number of years on ExecuComp at a specific firm for all observations.
12
Executives covering non-CEO corporate titles like the firms Chairman and Vice-Chairman receive significantly higher
average pay levels than other non-CEO corporate executives in ExecuComp over our sample period.
12
(market to book value of equity). Table 2 Panel A also provides summary statistics on female board

representation. The sample for the female board representation variables is 18,398 firm-years for

1997-2010, since 1997 is the first year that director gender data are populated on RiskMetrics. Across

all years, about 64% of sample firms have at least one female director on the board, with the

proportion of female directors averaging 10%. We note similar statistics when we compute the

frequency and proportion of female directors who are outside board members.

Table 2 Panel B reports mean comparison tests between firms with at least one female

executive in the year and firms with no female executives. Firms with at least one female executive

have significantly higher proportions of outside board members, are larger, have less leverage, higher

ROA, lower stock returns, less spending on R&D, and higher growth options. Firms with at least one

female executive also report significantly higher proportions of female board members. These results

are consistent with the evidence in Matsa and Miller (2011) that higher proportions of female directors

are positively associated with a firms likelihood of having at least one female executive. In

untabulated industry composition statistics, we also find that, compared to the distribution of firms

with male executives only, females are relatively more represented in the wholesale/retail and

telecommunication industries and less represented in the energy and durable consumer industries. In

the analyses that follow, we use econometrics techniques to moderate concerns about the selection of

female executives in specific types of firms or industries as well as concerns about female board

representation being endogenous to a firms compensation policies.

4. Methodology

4.1. Model

Our first set of analyses extends the models in Bertrand and Hallock (2001) to document the

existence of executive gender pay gaps in our sample. We start with the following OLS model:

COMPijt = 0 + 1FEMALEi + 2CEOijt + 3Non-CEO CorpTitlesijt + 4Non-CEO DivTitlesijt

13
+ 5(Tenure)ijt+ 6(Tenure)2ijt+ 7(Age)it+ 8(Age)2it + 9Board Sizejt
+ 10% Outside_Dirjt + 11Ln(Sales)jt-1 + 12Leverage jt-1 + 13ROA jt+ 14RET jt
+ 15ROA jt,jt-1 + 16RETjt, jt-1 + 17FirmRiskjt-1 + 18CAPEXjt-1
+ 19RDjt-1 + 20MB jt-1j=1,n+ jFIRMjt + k=1,n kYEARt +ijt (1)

where COMPijt measures the natural logs of salary or total compensation. Our primary variable

of interest is FEMALE. A significantly negative 1 indicates that female executives receive lower

average compensation levels relative to male executives. We include several executive-specific

control variables to isolate any gender effect in our models. First, we include the executives age and

tenure at the firm, since prior research has demonstrated that experience raises worker productivity

and earnings. 13 Second, we control for the type of executive job responsibilities. We include the first

three aggregate job categories (i.e., CEO, Non-CEO Corporate titles, and Divisional titles) described

in section 3.1 and allow the fourth category (i.e., Other titles) to be included in the intercept. 14

Third, we include the firm-level variables presented in Table 2 (all defined in the Appendix). We

estimate our models using firm fixed-effects to capture time-invariant unobservable firm

characteristics (e.g., firm culture) that may be correlated with the firms selection of a female in a top-

paid executive position or with the firms compensation policies. We also include year fixed-effects to

capture labor market trends over time. To control for autocorrelations in the errors, we compute robust

standard errors clustered at the executive level. 15

Our second set of tests examines the roles of female risk aversion and lack of gender diversity

on the boards as partial explanations for the gender pay gaps. To test for differential risk aversion, we

first estimate our models after replacing the salary and total compensation variables with the

13
Following Bertrand and Hallock (2001), we include quadratic terms for age and tenure. Since economic models predict
the returns on experience to be positive but diminishing over time, we expect positive coefficients on age and tenure and
negative coefficients on the squared terms.
14
Our findings of gender pay gaps are robust to including the original job titles (i.e., CEO, CFO, COO, Other Chief,
President, Vice-President, Chairman, Vice-Chairman, Divisional President, Divisional Chief, Divisional Chair, and Other
title) as separate indicators instead of our four aggregate job categories.
15
Our results are not sensitive to clustering standard errors at the firm rather than the executive level.
14
executives stock option delta and vega. 16 If female executives are more likely to sort into lower deltas

and vegas because of higher risk aversion, we predict a negative coefficient on FEMALE. We also

investigate whether female executives require greater risk premiums for holding a given level of

incentives and whether the risk premiums female executives demand impact the incentive structures

of the compensation packages they receive. We augment Equation (1) to include lagged option delta

and vega and their interactions with the FEMALE indicator. We predict positive coefficients on delta

and vega for both measures of compensation and positive coefficients on the interaction when salary

is the dependent variable. Finally, to investigate the effect of board gender diversity on the size of the

executive gender pay gaps, we augment Equation (1) with the proportion of female board members

and its interaction with the FEMALE indicator. If having more females on the board mitigates the pay

gaps, we predict positive coefficients on the interaction.

4.2. Unobservable firm characteristics

One concern in our analyses is that some unobservable firm characteristics exist that are

related to both the firms decision to hire female executives and the firms compensation policies. The

firm, for example, may offer a contract with lower pay levels and/or incentives that female executives

are more likely to accept. If that is the case, the coefficient on FEMALE should not be interpreted as

female executives being inclined to accept lower pay levels but females taking jobs at firms with

lower paying contracts. To the extent that any of these unobservable firm characteristics are time-

invariant or slow moving, the inclusion of firm fixed-effects in our models should mitigate these

concerns. However, to ensure that our results are not driven by females selection in specific types of

16
Research examining incentive effects have also considered portfolio (stock + option) deltas (for example, Core and
Guay, 1999). We do not use this proxy for two reasons. First, portfolio deltas are less likely to reflect payout convexity
due to the inclusion of restricted shares (Hayes et al., 2012). Second, firms often implement executive ownership
requirements as a multiple of salary (Core and Larcker, 2002). Since stock grants and the resulting holdings will fluctuate
with salary levels, portfolio deltas may not reflect risk aversion as cleanly as option deltas and vegas. Thus, we base our
analyses on these incentive measures, with option vega being the most powerful proxy since its hypothesized relation with
risk-taking activity is unambiguous (Hayes et al., 2012; Armstrong et al., 2013).
15
firms, we use a Heckman selection model in which the first stage probit models the firms

unobservable demand for female executives based on a set of firm characteristics plus an instrument.

In the context of compensation models, it is usually difficult to come up with a valid

instrument because factors that are arguably correlated with endogenous selection (i.e., the likelihood

that the firm employs a female executive) are also likely to affect the outcome variable (i.e., firms

compensation policies). We source our instrument from the gender inequality literature. Sugarman

and Straus (1988), updated by Di Noia (2002), develop a state-level gender equality index that

combines a set of economic, political and legal factors. The underlying assumption in Sugarman and

Straus (1988) and De Noia (2002) is that states with higher gender equality would have a larger pool

of females with similar education and occupational prestige as men, and thus greater likelihood to

have female delegates elected to Congress. Huang and Kisgen (2015) use this index to instrument the

likelihood of a firms having a female CEO based on the location of the firms headquarters. Since

some of the economic factors used in the original index include wage equality and are therefore

endogenous to our dependent variables, we focus on political characteristics to capture a states

general attitude toward females. Our instrument is a state-level variable that measures the proportion

of female delegates elected to the House and Senate from the state in the year. 17 We obtain the listing

of female delegates elected to each Congress by state from the Office of the Historian, U.S. House of

Representatives. We obtain the sizes of the total delegates, by state, updated for each 10 year period of

the census, from the U.S. Census Bureau. Our conjecture, similar to Huang and Kisgen (2015), is that

the proportion of females elected in a state is associated with the local supply of females qualified for

executives roles, thus the likelihood of a firm headquartered in that state hiring a female executive, but

is not directly related to the executive pay practices at any specific local firm.

17
Di Noia (2002) uses data from a 1992 Census Bureau publication that reports the proportion of females elected to state
offices. Since we were unable to find any update to that census data, we use the proportion of females elected to national
offices to build our instrument.
16
Table 3 (Column 1) reports estimation results from the first-stage probit for the firms

likelihood of having a female top-paid executive as a function of our instrument, firm characteristics,

industry and year fixed effects. The set of firm characteristics includes all the firm-level variables in

Equation (1) plus the firms proportion of female directors since the statistics in Table 2 suggest a

positive association between the proportion of female board members and the likelihood of the firm

having at least one female executive. Supporting the first condition for the validity of our instrument,

we find a significant positive association between the instrument and the firms likelihood of having a

female executive in the year (at p<0.001 level), with a -statistic of 20.34. In robustness analyses that

follow, we include the Inverse-Mills ratio estimated from the probit as an additional control in the

compensation models estimated using Equation (1).

4.3. Propensity score matching

As an alternative approach to account for endogenous selection, we use propensity-score

matching to pair the female executives in our sample to male executives most similar in firm- and

executive-level characteristics. Tucker (2010) extensively discusses the suitability of the method when

dealing with the effect from observable variables on the outcome of interest. While IV estimations

mitigate selection problems due to unobservables by estimating a bias correction term, propensity-

score matching mitigates selection problems by pairing treated and untreated observations based on a

set of observable characteristics. 18 Since we expect both unobservables (a firms friendless towards

females) and observables (executive and firm characteristics) to impact executive pay differentials, we

use both methodologies as separate robustness tests in our analyses.

The propensity score method uses a logit that models an executives likelihood of being

female as a function of observable covariates. Since the ultimate goal of the matching is to find a

18
As both studies point out, the method alleviates concerns about misspecification because the probability of an
observation receiving the treatment is estimated conditionally on a set of observable covariates (e.g., Li and Prabhala,
2007; Tucker, 2010).
17
control group (male executives) that resembles (in terms of distributional similarity) the treated group

(female executives) on executive- and firm-level factors, we use our complete set of executive and

firm characteristics to extrapolate matched pairs with the most similar age, tenure, job titles, and

employed at firms with most similar size, leverage, performance, growth, risk characteristics and

industry. This approach is consistent with the recommendations in Li and Prabhala (2007) to include a

comprehensive list of attributes when estimating the score. Moreover, by including the executive- and

firm-level characteristics we use as controls in our models, we can relax the assumption of a constant

functional relationship between the controls (e.g., age, tenure, title, firm size, etc.) and the outcome

variables (pay and incentive levels) across the two treatment groups (i.e., female and male).

Table 3 (Column 2) tabulates results from the logit model we use to generate the propensity

scores to match female to male executives in our sample. We estimate an executives likelihood of

being female as a function of all the executive- and firm-level variables in Equation (1) plus the firms

proportion of female directors, industry and year fixed effects. 19 The results from the logit are

generally consistent with the univariate results in Tables 1 and 2. Using the propensity scores obtained

from the logit, we match each female-year observation with a male-year observation with the closest

score. We additionally restrict the search with Mahalanobis-metric matching based on title, age,

tenure, industry, and firm size, to ensure that the matched male is of the most similar age and tenure

and has the same role in a firm in the same industry and of most similar size. We match on an annual

basis so that a female in any given year is matched to a male in that same year and with replacement

(i.e., allowing a male to match to more than one female). In doing so, we end up with a balanced panel

of 6,784 matches of female and male executives most similar in firm- and executive-level

19
We use a logit model to estimate the probability of a firms having a female executive, as it is the most common
approach to estimate propensity scores for a singular treatment effect (see Lawrence et al., 2011).
18
characteristics. 20 In additional analyses that follow, we replicate our models over the subsample of

matched pairs estimated from the propensity score matching.

5. Results

5.1. Executive gender pay gaps

Table 4 reports results from our first set of tests investigating the existence of gender

compensation gaps among executives. Columns 1-2 present results from the OLS models. Columns 3-

4 replicate the estimations after including the Inverse Mills ratio from the first-stage IV probit

reported in Table 3 (Column 1). Columns 5-6 present results for the subsample of executive female-

years and their matched male-years determined by the first-stage propensity score logit reported in

Table 3 (Column 2). Across both models in Columns 1-2, the FEMALE coefficient is negative and

highly significant. When salary is the dependent variable, the coefficient on FEMALE is -6.6%. When

total compensation is the dependent variable, the coefficient on FEMALE is -14.3%, equivalent to a

percentage gap of about 15%. 21 These results provide first evidence for the existence of significant

gender pay gaps in our sample. Including the Inverse Mills correction factor or restricting sample

observations to the propensity score matched pairs does not alter our results. We continue to find

significant pay gaps for female executives, with coefficients of -6.3% and -13.6% (when including the

Inverse Mills in the models) and -8.8% and -15.2% (when using the propensity score matched

subsample), for salary and total compensation levels, respectively. All our results are also robust to

restricting the analyses to the subsample of firm-years with at least one female executive or replacing

the firm fixed-effects with (2-SIC codes) industry fixed-effects. These additional results moderate

further concerns that the significantly negative coefficients on FEMALE capture a segregation of

female executives in specific types of firms or industries.

20
As evidence of balance in the panel, all but five covariates are statistically insignificantly different between the females
and their matched males. And, for those five, although statistically significant, they are not economically different. The
largest difference is for the percent of female board members which is 3% larger for the female observations.
21
This is computed as (exp -0.143-1)*100).
19
Another potential concern in our analyses is that the gender pay gaps we observe in Table 4

come from some unobservable executive characteristics that differ systematically between men and

women such as commitment to the labor force, motivation to succeed, innate ability, and family

responsibilities (United States General Accounting Office, 2003). To address this concern, we perform

several additional tests. First, we estimate our models including prior year pay. If pay levels differ

across executives due to unobservable traits such as having lower career advancing opportunities,

education, qualifications or ambition, or more family responsibility, the inclusion of prior year

compensation should control for the effect of such traits on current year pay. In this specification, the

coefficient on FEMALE can be interpreted as average annual pay increases for female executives. As

reported in Table 4 (Columns 7-8), we continue to find statistically significant negative coefficients on

FEMALE for both salary and total compensation. Second, although controlling for prior year pay

should capture the effect that other executive characteristics, including educational achievements,

have on pay, we hand-collect education data for the female executives and the propensity-score

matched males. Of the original 6,784 matched pairs, we are able to obtain education data for each

person in 4,769 pairs. We re-estimate our model using this subsample and adding two variables

measuring whether the executive attended an ivy-league school and has an MBA degree. In

untabulated analyses, we continue to find that the gender gaps in compensation remain, suggesting

that any differences in educational achievements are not driving our results. Collectively, these

additional analyses suggest that executive-specific unobservable characteristics are unlikely to drive

our main finding of significant salary and total pay gaps between female and male executives.

Third, it could be the case that our results are driven by male executives experiencing greater

turnover rates than females. If so, the gaps may be due to additional pay male executives receive

around turnovers (such as for the equity forfeited at the prior employer or other relocation expenses).

To address these concerns, we rerun our analyses in Table 4 after excluding the first year an executive

20
appears at a firm and find that our results are unchanged. We reach similar conclusions when we

compute salary and total compensation changes around a sample of 900 executive gender turnovers

made of 496 female executives replacing male executives and 404 male executives replacing female

executives covering identical titles at the firm over two consecutive years. 22 Untabulated univariate

analyses indicate that male-to-female replacements are associated with significantly negative salary

changes and significantly lower total compensation changes than female-to-male replacements. We

also obtain similar results in multivariate analyses. We estimate changes in salary and total

compensation as functions of changes in executive characteristics and include year fixed effects. In

Table 5 Columns 1 and 2, when we estimate the model using only the 900 switching observations, the

indicator capturing male-to-female replacements is negative but not significant, possibly because of

the limited the sample size. In Columns 3 and 4, we also include observations of executive turnovers

occurring within the same job category at the firm but that did not involve a change in gender as the

baseline to better capture the different effect of gender changes. In this specification, we further

include firm fixed effects to allow for within-firm comparisons across executive turnovers involving

gender changes and turnovers with no gender changes. We find that male-to-female (female-to-male)

replacements are associated with significantly negative (positive) salary and total compensation

changes compared to the baseline case of turnovers involving no changes in gender. Results from

these turnover analyses are consistent with our main result that female executives are paid lower

compensation levels for covering similar job titles of male executives at their firms.

5.2. The role of female risk aversion

Having documented the existence of significant gender compensation gaps in our sample, in

this section we examine the role of female risk aversion as a contributing factor. Table 6 reports

22
Out of the 900 gender turnovers, 491 are internal promotions and the remaining 409 are external appointments, with the
proportion of internal promotions (external appointments) being 58% (42%) for male-to-female replacements and 50%
(50%) for female-to-male replacements, respectively. Based on these statistics, we have no reason to believe that the
results are biased because of externally appointed males receiving significant hiring premiums at the firms they join.
21
estimation results from our models. For both incentive measures, we find a negative and significant

coefficient on FEMALE, consistent with female executives holding significantly lower equity

incentives. These results support the conjecture that female executive show, on average, greater

aversion towards incentive risk as captured by lower deltas and vegas (see Goel and Thakor, 2008;

Coles and Li, 2012). As with our analyses in Table 4, we perform tests to address concerns about

endogenous selection and executive unobservable characteristics. Columns 3-4 include the Inverse

Mills ratio from the first-stage IV probit for the firms likelihood of having a female executive.

Columns 5-6 present results for the subsample of matched pair determined by the propensity score

matching. Columns 7-8 present the results after including lagged incentives to our models. Across all

specifications, our results that female executives report substantially lower equity incentives remain

unchanged. In untabulated tests, we examine the possibility that our findings are driven by systematic

gender differences in wealth accumulation. We replicate the models in Table 6 after including the log

of the value of the executives stock holdings as a proxy for wealth. We find that the coefficients on

FEMALE remain negative and significant, suggesting that female executives continue to hold lower

equity incentives after controlling for their potentially lower wealth. 23

Next, we test whether differential risk aversion translates in different pay structures across

female and male executives. We replicate our models for salary and total pay after including the

lagged values of the executives delta and vega as main variables and interacted with FEMALE. We

expect that greater equity incentives will result in higher pay for all executives, as risk-averse agents

will require greater premiums to bear higher levels of risk, yielding positive coefficients on the deltas

and vegas. But we have two predictions specific to differential risk aversion for females. First, if

female executives are more risk-averse than males, they will likely require premiums in the form of

additional safe pay (i.e., salary) rather than new equity. This prediction would translate into positive

23
An alternative would be to use the average per share delta and vega as the dependent variable since that abstracts from
wealth accumulation. However, if female risk aversion manifests in females accepting contracts with fewer equity grants,
this dependent variable would not capture that.
22
coefficients on the interactions of FEMALE and the lagged deltas or vegas when salary is the

dependent variable. Moreover, if females also prefer, at the margin, fewer equity grants for an existing

level of incentives, we expect insignificant coefficients on the interactions of FEMALE and the lagged

deltas or vegas when total compensation is the dependent variable, since the lower equity grants will

offset the higher salary premiums females require. Results in Table 7 support these predictions.

Furthermore, the significantly negative coefficients on FEMALE across all models suggest that,

despite the greater premiums, female executives still receive lower salaries and total pay levels.

The results that female executives hold significantly lower option portfolios and require

greater risk premiums for a given level of incentives are also consistent with female executives being

under-confident relative to males. The compensation literature agrees that overconfidence translates

in executives accepting pay packages with larger stock option and share grants and/or delaying stock

options exercises (Malmendier and Tate, 2005). We interpret our results as higher risk aversion, since

the literature assumes that overconfident executives are also less risk-averse. Consistent with this

view, Humphrey-Jenner et al. (2015) finds that overconfident executives are willing to accept greater

incentive pay, measured as the proportion of total pay coming from stock option and share grants.

Together, results in Tables 6 and 7 support the prediction that female executives higher risk

aversion can contribute to lower pay levels (and greater compensation gaps) through its effect on the

risk profile of the pay packages female executives likely accept. Our results also suggest that female

higher risk aversion may act as a deterrent to pay convergence. In untabulated analyses testing for

trends in the gaps, while we find that the salary and total pay have declined over time, we find no

evidence that the incentive gaps have. 24 These results suggest that higher aversion to incentive risk

captures a relatively stable female characteristic.

24
We test for time trends in the gap by replicating our models in Tables 4 and 6 after interacting FEMALE with an
indicator variable capturing the post-2001 period. We select the post-2001 window because of the board composition
changes that started with the Sarbanes-Oxley Act in 2002 and the subsequent NYSE-NASDAQ-AMEX listing rules.
23
5.3. The role of female board representation

We investigate the extent to which gender board diversity affects the size of the gender pay

gaps in Table 8. Across all model specifications, we find that the coefficient on FEMALE is still

negative and significant and the coefficient on its interaction with %FEMALE_BOARD is positive

and significant for both flow compensation measures. 25 For a firm with sample average proportion of

female board members (9%), the gender pay gap in total compensation is approximately 5% lower

than the 21% gap for firms with no females on the board. 26 These results suggest that gender pay gaps

exist, but that greater gender diversity in the boardroom mitigates the gaps. Table 8 (Columns 3-8)

replicates the set of tests presented in Tables 4 and 6. We find that the economic impact of board

gender diversity on the pay gaps is similar in magnitude across all model specifications. As for the

tests for the existence of the pay and incentive gaps, the female board representation results are robust

to restricting the analyses to firm-years observations with at least one female executive, or estimating

the models after replacing the firm fixed-effects with (2-SIC codes) industry fixed-effects.

We run several additional analyses (untabulated) to test the robustness of our results. First, we

replicate the models in Table 8 after excluding CEO observations to address concerns that our results

might be driven by highly-paid female CEOs appointing more females to the board, altering the

direction of causality. Our board composition results are robust to this sample restriction. We also

estimate our models on CEO observations only and find no evidence of gender pay gaps. One

potential explanation is that, with the limited pool of candidates qualified to CEO positions and the

scarcity of females in that pool, firms seeking to a hire a female CEO must pay competitive wages.

Another likely explanation is that our analysis lacks power due to lack of sufficient gender variation

within the sub-sample of CEOs only. Second, we include the proportion of female executives at the

firm as an additional control in our models to test whether the effect from board gender diversity gets

25
Since most of female board members are outsiders, we obtain very similar results when we use the proportion of female
outside directors rather than the proportion of all (outside and inside) female directors as our board representation variable.
26
These are computed as (exp 0.582*.09-1)*100 and (exp -0.217-1)*100, respectively.
24
mitigated when the firm has more female top-paid executives. Results from these tests do not alter our

conclusions. 27 Third, we replicate the models after replacing the female board representation variable

with the proportion of female directors serving on the compensation committee to test whether gender

diversity on the committee acts as a direct channel in mitigating potential gender biases in the pay-

setting process. 28 We find that the coefficient on the interaction term is also positive and significant,

suggesting that gender diversity on the compensation committee helps narrow the gaps.

An additional econometric problem in assessing the effect of board gender diversity is the

endogenous nature of board composition to the firms compensation policies (Adams and Ferreira,

2009). 29 This problem would arise if, for example, companies with less gender biased pay policies are

also more likely to appoint more female directors on their boards. In an attempt to address these

concerns, we estimate the proportion of the firms female board members using two instrumental

variables. First, we follow Adams and Ferreira (2009) and use the firms fraction of male board

members who serve on other boards that include female directors. The identifying assumption is that

the more socially connected the firms male directors are to women through other boards, the more

female directors should be observed on the firms board. Second, we follow Campa and Kedia (2002)

and use the industry average proportion of female board members (computed at the 2-SIC codes

level), after excluding sample firms. The identifying assumption is that the more female directors are

in the industry, the higher the supply of qualified female directors available to serve on the firms

board. By excluding sample firms from the computation, this measure is less likely to be correlated

with sample firms characteristics. Table 9 presents the results from the first-stage IV models. As in

Adams and Ferreira (2009), we include controls for all firm-level variables we use in the second stage

27
Our results are qualitatively similar in alternative model specifications that control for both the CEO being a female and
the proportion of female executives at the firm.
28
Compensation committee composition is available starting from 1998 so these analyses are for 1998-2010.
29
We test for endogeneity using the Hausman test as described in Larcker and Rusticus (2010) and Lennox et al. (2012)
and reject the null that board composition is exogenous to firm compensation practices. This reinforces the importance of
addressing the endogeneity of board composition in compensation studies.
25
as well as firm-fixed effects. Across both columns, we observe a positive and significant relation

between the instruments and the firms percentage of female board members (both at the p<0.001

level). Table 10 reports the results from the second-stage regressions. Regardless of the instrument

used, our findings from Table 8 remain unchanged, although the coefficient on the female board

interaction is only one-tailed significant when using the Adams and Ferreira (2009) instrument.

As for the female board representation variable, we complement the OLS results for the female

compensation committee representation with IV estimations. Relative to selecting members to serve

on the board, there are fewer degrees of freedom to select compensation committee members as they

must be from the existing board and, since the new stock exchange listing rules of 2004, be

independent. As a result, we would not expect the Adams-Ferreria (2009) instrument to work well in

this setting since male compensation committee members are less likely to be able to influence the

firms choice of other members. 30 Using the industry average proportion of female compensation

committee members as the instrument, we continue to find evidence that gender pay gaps exist and

that diversity on the compensation committee serves as a channel in narrowing the gaps.

Collectively, our findings are consistent with gender pay gaps resulting, at least partially, from

lack of gender diversity on the board. The results could be attributed to lower gender discrimination or

better governance oversight when the proportion of female directors on the board increases. Although

we cannot distinguish between these explanations, they are both consistent with the lack of board

diversity being associated with lower salary and total pay levels for female executives.

6. Conclusions

Practitioners and the press assert that female executives receive significantly lower pay levels

than their male counterparts, but academic studies on this question provide mixed results. We first

document whether gender pay differentials exist using a large sample of executives in S&P1500 firms
30
Consistent with this conjecture, the Adams-Ferreira (2009) instrument loads weakly negatively (rather than positively)
in the first-stage model.
26
over the 19962010 period and find evidence of significant gender pay gaps. Although we attempt to

validate our results using a variety of econometric techniques to control for endogenous selection and

executive unobservable characteristics, we cannot exclude the possibility that the gender pay gaps we

document in our sample are a function of some other unobservable labor market dynamics related to

females selection into top executive positions.

We then investigate two potential explanations for the observed pay gaps. We first examine

the role of greater female risk aversion and its effect on ex-ante compensation contracting. We find

that female executives hold significantly lower equity incentives. The lower equity incentives are also

significantly associated with the level and structure of the pay packages female executives receive.

These results are consistent with greater female executive risk aversion as partial explanation for the

gender gaps in total pay. We next examine the role of gender diversity in the boardroom. Results from

these tests suggest that, when firms have more women on their boards or on the compensation

committee, the gender pay gaps are reduced. These findings are robust to analyses addressing

concerns of female board representation being endogenous to the firms pay policies. Together, our

results suggest that the pay gaps are, at least partially, due to gender bias in the boardroom or lower

governance oversight with fewer females on the board and that innate higher risk aversion among

women may inhibit full pay convergence, despite the mitigating effect of board gender diversity.

27
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30
Table 1: Summary Statistics of Executive Characteristics
Panel A of this table reports descriptive statistics of the flow compensation, equity incentives and other executive
characteristics for all executives in ExecuComp between 1996 and 2010 (165,774 executive-years). Panel B presents
univariate comparisons between female and male executives (9,832 and 155,942 executive-years, respectively). All flow
compensation and equity incentive variables are in millions. ***, **, * indicate significance at p < 0.01, p<0.05, p<0.10 (two-
tailed), respectively. All variables are defined in the Appendix.

Panel A: Descriptive Statistics N Mean SD Q1 Median Q3


Pay & Incentives
Salary 165,774 0.382 0.239 0.220 0.315 0.475
Total Comp 147,123 2.188 3.107 0.555 1.103 2.362
Option Delta 136,990 0.098 0.197 0.008 0.029 0.090
Option Vega 136,990 0.046 0.089 0.004 0.015 0.044
Age, Tenure & Titles
Age 134,668 51.307 7.940 46 51 56
Tenure 165,774 6.304 6.680 2 4 8
CEO 165,774 0.169 0.374 -- -- --
CFO 165,774 0.149 0.357 -- -- --
COO 165,774 0.062 0.241 -- -- --
Other Chief 165,774 0.075 0.264 -- -- --
President 165,774 0.168 0.374 -- -- --
Vice-President 165,774 0.345 0.475 -- -- --
Chairman 165,774 0.129 0.336 -- -- --
Vice-Chairman 165,774 0.023 0.150 -- -- --
Divisional President 165,774 0.095 0.293 -- -- --
Divisional Chief 165,774 0.255 0.436 -- -- --
Divisional Chairman 165,774 0.008 0.088 -- -- --
Non-CEO Corporate Titles 165,774 0.548 0.498 -- -- --
Non-CEO Divisional Titles 165,774 0.258 0.437 -- -- --
Other Titles 165,774 0.025 0.157 -- -- --

Panel B: Univariate Comparisons Female Executives Male Executives Diff


N (N = 9,832) (N = 155,942) (p value)
Mean SD Mean SD
Pay & Incentives
Salary 165,774 0.330 0.204 0.385 0.241 ***
Total Comp 147,123 1.678 2.381 2.218 3.142 ***
Option Delta 136,990 0.062 0.130 0.101 0.200 ***
Option Vega 136,990 0.032 0.067 0.047 0.090 ***
Age, Tenure & Titles

Age 134,668 47.643 6.345 51.595 7.981 ***


Tenure 165,774 4.929 5.068 6.391 6.760 ***
CEO 165,774 0.057 0.233 0.176 0.380 ***
CFO 165,774 0.173 0.378 0.148 0.355 ***
COO 165,774 0.033 0.178 0.064 0.245 ***
Other Chief 165,774 0.115 0.319 0.073 0.260 ***
President 165,774 0.083 0.276 0.173 0.378 ***
Vice-President 165,774 0.426 0.494 0.339 0.474 ***
Chairman 165,774 0.031 0.174 0.129 0.336 ***
Vice-Chairman 165,774 0.019 0.137 0.023 0.150 **
Divisional President 165,774 0.089 0.284 0.095 0.293 ***
Divisional Chief 165,774 0.303 0.459 0.255 0.436 ***
Divisional Chairman 165,774 0.005 0.073 0.008 0.088 ***
Non-CEO Corporate Titles 165,774 0.597 0.491 0.545 0.498 ***
Non-CEO Divisional Titles 165,774 0.310 0.463 0.254 0.436 ***
Other Titles 165,774 0.036 0.185 0.025 0.155 ***

31
Table 2: Summary Statistics of Firm Characteristics
Panel A of this table reports descriptive statistics of firm characteristics for our sample of ExecuComp firms with available
data on the selected variables between 1996 and 2010 (19,451 firm-year observations). The sample for the female board
representation variables is 18,398 firm-years for 1997-2010, since 1997 is the first year that director gender data are
populated on Riskmetrics. Panel B presents univariate comparisons between firm-years with at least one female executives
and firm-years with no female executives. ***, **, * indicate significance at p < 0.01, p<0.05, p<0.10 (two-tailed),
respectively. All variables are defined in the Appendix.

Panel A: Descriptive Statistics N Mean SD Q1 Median Q3


Firm Characteristics
Board Size 19,451 9.516 2.700 8 9 11
% Outside Dirs 19,451 0.805 0.107 0.750 0.833 0.889
Sales ($ millions) 19,451 4,518 8,902 521 1,300 3,897
Leverage 19,451 0.225 0.181 0.067 0.213 0.342
ROA 19,451 0.089 0.089 0.042 0.084 0.134
ROAt-1 19,451 0.093 0.088 0.045 0.088 0.138
RET 19,451 0.146 0.418 -0.077 0.149 0.364
RETt-1 19,451 0.156 0.425 -0.079 0.154 0.375
Firm Risk 19,451 0.017 0.029 0.005 0.009 0.019
CAPEX 19,451 0.035 0.049 0.000 0.018 0.050
RD 19,451 0.025 0.049 0.000 0.000 0.028
MB 19,451 3.105 3.109 1.513 2.232 3.573
Female Board Representation
% Firm-Years with:
>=1 Female Board 18,398 64.3% 47.9% -- -- --
>=1 Female Outside Dir 18,398 62.3% 48.4% -- -- --
% Female Board 18,398 0.097 0.090 0.000 0.100 0.154
% Female Outside Dirs 18,398 0.111 0.105 0.000 0.111 0.182

Panel B: Univariate Comparisons


Firm Characteristics Firm-Years with female Firm-Years with no Diff
executives female executives (p value)
N (N = 5,422) (N = 14,029)
Mean SD Mean SD
Board Size 19,451 9.504 2.626 9.521 2.728
% Outside Dirs 19,451 0.818 0.100 0.800 0.109 ***
Sales ($ millions) 19,451 5,004 9,892 4,330 8,481 ***
Leverage 19,451 0.219 0.185 0.228 0.179 **
ROA 19,451 0.091 0.094 0.088 0.087 **
ROAt-1 19,451 0.097 0.093 0.092 0.086 ***
RET 19,451 0.126 0.427 0.154 0.415 ***
RETt-1 19,451 0.136 0.434 0.163 0.423 ***
Firm Risk 19,451 0.017 0.038 0.017 0.025
CAPEX 19,451 0.034 0.047 0.034 0.049
RD 19,451 0.023 0.050 0.026 0.049 ***
MB 19,451 3.315 3.559 3.023 2.913 ***

Female Board Representation Firm-Years with female Firm-Years with no Diff


executives female executives (p value)
(N = 5,254) (N = 13,144)
Mean SD Mean SD
% Firm-Years with:
>=1 Female Board 18,398 74.2% 43.7% 60.4% 48.9% ***
>=1 Female Outside Dir 18,398 69.4% 46.1% 59.5% 49.1% ***
% Female Board 18,398 0.126 0.099 0.086 0.084 ***
% Female Outside Dirs 18,398 0.133 0.111 0.102 0.101 ***

32
Table 3: First-stage IV probit and PSM logit

Column 1 of this table reports results from a first stage IV probit for the firms likelihood of having a female top-paid
executive in the year. The instrument Congress Ratio jt measures the female proportion of delegates elected to the House
and Senate in the state where the firm is headquartered. The z-statistics for the probit estimates (reported in parentheses)
are based on standard errors clustered at the firm level. Column II of this table reports results from a first stage propensity-
score matching (PSM) logit for the executives likelihood of being a female. The z-statistics for the logit estimates
(reported in parentheses) are based on standard errors clustered at the executive level. Sample period is 1997-2010. All
non-indicator variables are winsorized at the top and bottom one-percentiles. ***, **, * indicate significance at the p<0.01,
p<0.5, p<0.10 level, respectively. All variables are defined in the Appendix.

First-Stage IV Probit First-Stage PSM Logit


(Firm has at least one female executive) (Executive is a female)
1 2

Congress Ratio jt 1.140 ( 4.51) *** --

CEO ijt -- - 1.623 (-8.99) ***


Non-CEO Corporate Titles ijt -- - 0.391 (-2.84) ***
Non-CEO Divisional Titles ijt -- - 0.272 (-1.92) *
Tenure ijt -- - 0.567 (-4.35) ***
Tenure ijt 2 -- 13.449 ( 2.35) **
Age it -- 2.219 ( 3.41) ***
Age it 2 -- -28.297 (-4.17) ***

Board Size jt - 0.032 (-2.42) ** - 0.016 (-1.22)


% Outside Dirs jt 1.069 ( 3.77) *** 1.411 ( 4.72) ***
% Female Board jt 2.728 ( 8.50) *** 4.379 (13.54) ***
Ln(Sales) jt-1 - 0.017 (-0.69) - 0.110 (-4.32) ***
Leverage jt-1 - 0.121 (-0.62) - 0.590 (-3.38) ***
ROA jt-1 - 0.058 (-0.18) 0.575 ( 1.77) *
RET jt-1 - 0.092 (-2.76) *** - 0.101 (-3.00) ***
Firm Risk jt-1 0.808 ( 1.83) * 0.997 ( 2.34) **
CAPEX jt-1 0.222 ( 0.36) - 0.059 (-0.10)
RD jt-1 1.305 ( 1.63) - 0.735 (-0.90)
MBt-1 0.012 ( 1.60) 0.012 ( 1.42)

Constant jt - 1.809 (-3.64) *** - 6.766 (-4.25) ***

Industry j & Year t FEs YES YES

N 12,314 93,086
Pseudo R2 0.095 0.100
Prob > 2 0.000 0.000

33
Table 4: Female/Male Flow Compensation Gaps
This table reports results from estimation models that examine executive gender differences in salary and total
compensation levels. Columns 1-2 present results from OLS models. Columns 3-4 include the Inverse Mills ratio from the
first-stage IV probit reported in Table 3 (Column 1). Columns 5-6 present results for the subsample of executive-female-
years and their matched executive-male-years determined by the first-stage propensity score logit reported in Table 3
(Column 2). Columns 7-8 present results after including lagged compensation to the models. All non-indicator variables
are winsorized at the top and bottom one-percentiles. All models include firm and year fixed-effects. The t-values,
reported in parentheses, are based on standard errors clustered at the executive level. The set of firm-level controls include:
Board_Sizejt, % Out_Dirsjt, Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, RET jt-1, Firm Risk jt-1 , CAPEX jt-1, RD jt-1, MBt-1,. ROAjt
and RETjt are included when Total Comp is the dependent variable. ***, **, * indicate significance at the p<0.01, p<0.5,
p<0.10 level, respectively. All variables are defined in the Appendix.

Main Analysis Including the Inverse-Mills Ratio


Dependent Variable Salaryijt Total Compijt Salaryijt Total Compijt
1 2 3 4

Female i -0.066*** -0.143*** -0.063*** -0.136***


(-9.23) (-11.67) (-7.11) (-9.08)

CEO ijt 0.794*** 1.102*** 0.783*** 1.080***


(49.93) (42.28) (39.96) (35.31)
Non-CEO Corporate Titles ijt 0.250*** 0.306*** 0.252*** 0.284***
(17.30) (12.19) (14.40) (9.71)
Non-CEO Divisional Titles ijt 0.181*** 0.151*** 0.185*** 0.140***
(12.35) (5.95) (10.47) (4.73)
Tenure ijt 0.335*** 0.181*** 0.327*** 0.217***
(34.68) (12.39) (28.43) (12.47)
Tenure ijt 2 -7.763*** -3.976*** -7.431*** -4.723***
(-24.68) (-8.57) (-19.81) (-8.64)
Age it 0.295*** 0.265*** 0.338*** 0.329***
(8.52) (5.92) (7.77) (5.65)
Age it 2 -2.206*** -2.273*** -2.633*** -2.866***
(-6.49) (-5.35) (-6.15) (-5.22)
Inverse Mills Ratio it -- -- -0.064*** -0.079***
(-3.82) (-2.92)
Salaryijt-1 -- -- -- --

Total Compijt-1 -- -- -- --

Constant ijt 3.707*** 4.351*** 3.718*** 4.282***


(37.08) (29.08) (28.93) (22.05)

Firm-level Controls jt, jt-1 YES YES YES YES


Firm j & Year t FEs YES YES YES YES

N 93,086 85,070 64,109 58,702


Adj R2 0.638 0.677 0.639 0.681

34
Table 4 (contd)

Propensity-Score Matched Sample Including Lagged Comp


Dependent Variable Salaryijt Total Compijt Salaryijt Total Compijt
5 6 7 8

Female i -0.088*** -0.152*** -0.039*** -0.076***


(-8.81) (-8.77) (-8.14) (-8.20)

CEO ijt 0.801*** 1.130*** 0.492*** 0.706***


(18.50) (16.30) (30.47) (27.73)
Non-CEO Corporate Titles ijt 0.258*** 0.293*** 0.203*** 0.209***
(8.40) (4.88) (15.15) (8.74)
Non-CEO Divisional Titles ijt 0.190*** 0.147** 0.156*** 0.120***
(6.17) (2.42) (11.68) (4.96)
Tenure ijt 0.457*** 0.175*** -0.100*** 0.115***
(15.66) (3.99) (-12.61) (10.19)
Tenure ijt 2 -12.758*** -4.085** 2.781*** -2.556***
(-9.70) (-2.45) (12.21) (-7.56)
Age it 0.213** 0.337** 0.135*** 0.048
(2.42) (2.08) (6.35) (1.47)
Age it 2 -1.407 -2.776* -1.241*** -0.608**
(-1.59) (-1.69) (-6.06) (-1.99)
Inverse Mills Ratio it -- -- -- --

Salaryijt-1 -- -- 0.516*** --
(44.39)
Total Compijt-1 -- -- -- 0.383***
(50.23)

Constant ijt 3.945*** 4.501*** 1.913*** 3.168***


(15.83) (9.61) (23.96) (25.99)

Firm-level Controls jt, jt-1 YES YES YES YES


Firm j & Year t FEs YES YES YES YES

N 13,568 11,594 81,621 71,309


Adj R2 0.663 0.701 0.797 0.746

35
Table 5: Female/Male Replacements
This table provides multivariate tests for the changes in salary and total compensation levels around a sample of executive
turnovers made of female executives replacing male executives and male executives replacing female executives covering
the same identical titles at the same firm over two consecutive years between 1996 and 2010 in ExecuComp. Columns 1
and 2 report the results of estimations including only the 900 turnovers that involve gender changes, with year fixed
effects. Columns 3 and 4 report estimation results after including a sample of 19,053 executive turnovers occurred within
the same job category at the firm but that did not involve a change in gender. Standard errors are in parenthesis. ***, **, *
indicate significance at the p<0.01, p<0.5, p<0.10 level, respectively.

(1) (2) (3) (4)


Dependent Variable Salary Total Comp Salary Total Comp

Female-to-Male - - 0.036** 0.097***


(2.50) (3.47)
Male-to-Female -0.004 -0.056 -0.045*** -0.049*
(-0.08) (-0.64) (-3.07) (-1.73)

Tenure 0.388*** -0.212 0.381*** 0.106***


(4.78) (-1.61) (31.55) (4.62)
Tenure 2 -10.727*** 6.596 -10.123*** -2.814***
(-3.66) (1.42) (-23.65) (-3.50)
Age 0.188 0.249 0.119*** 0.145**
(0.84) (0.68) (3.52) (2.17)
Age 2
-0.966 -1.338 -0.710** -1.331**
(-0.45) (-0.39) (-2.12) (-2.02)

Constant ijt 0.884 0.929* 0.263 0.605


(1.35) (1.70) (0.54) (0.77)

Firm j FEs NO NO YES YES


Year t FEs YES YES YES YES

N 654 527 19,708 14,821


R2 0.096 0.048 0.184 0.162

36
Table 6: Female/Male Equity Incentive Gaps
This table reports results from various estimation models that examine gender differences in equity incentives. Columns 1-
2 present results from OLS models. Columns 3-4 include the Inverse Mills ratio from the first-stage IV probit reported in
Table 3 (Column 1). Columns 5-6 present results for the subsample of executive-female-years and their matched
executive-male-years determined by the first-stage propensity score logit reported in Table 3 (Column 2). Columns 7-8
present results after including lagged equity incentives to the models. Sample period for this table is 1996-2010. All non-
indicator variables are winsorized at the top and bottom one-percentiles. All models include firm and year fixed-effects.
The t-values, reported in parentheses, are based on standard errors clustered at the executive level. The set of executive-
level controls include job titles, tenure and age.The set of firm-level controls include: Board_Sizejt, % Out_Dirsjt,
Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, jt, RETjt-1, jt, Firm Riskjt-1, CAPEXjt-1, RDjt-1, MBt-1,. ***, **, * indicate significance at
the p<0.01, p<0.5, p<0.10 level (two-tailed), respectively. Variables are defined in the Appendix.

Main Analysis Including the Inverse-Mills Ratio


Dependent Variable Option Delta ijt Option Vega ijt Option Delta ijt Option Vega ijt
1 2 3 4

Female i -0.147*** -0.130*** -0.144*** -0.125***


(-6.44) (-6.34) (-5.13) (-4.99)

CEO ijt 1.453*** 1.347*** 1.392*** 1.272***


(27.54) (28.40) (22.27) (22.58)
Non-CEO Corporate Titles ijt 0.507*** 0.452*** 0.470*** 0.398***
(10.03) (9.91) (7.92) (7.44)
Non-CEO Divisional Titles ijt 0.322*** 0.276*** 0.298*** 0.232***
(6.27) (5.99) (4.93) (4.27)
Tenure ijt 1.097*** 0.793*** 1.134*** 0.832***
(34.51) (27.86) (29.65) (24.26)
Tenure ijt 2 -27.341*** -19.673*** -27.709*** -20.143***
(-24.81) (-20.32) (-21.42) (-17.70)
Age it 0.899*** 0.755*** 0.964*** 0.824***
(7.83) (7.62) (6.69) (6.70)
Age it 2 -8.392*** -7.270*** -8.961*** -7.921***
(-7.55) (-7.58) (-6.46) (-6.69)
Inverse Mills Ratio it -- -- -0.074 -0.142***
(-1.33) (-2.71)
Option Delta ijt-1 -- -- -- --

Option Vega ijt-1 -- -- -- --

Constant ijt -3.245*** -2.839*** -3.540*** -2.899***


(-9.69) (-9.54) (-8.15) (-7.56)

Firm-level Controls jt, jt-1 YES YES YES YES


Firm j & Year t FEs YES YES YES YES

N 81,960 81,960 56,606 56,606


Adj R2 0.673 0.647 0.670 0.647

37
Table 6 (contd)

Propensity-Score Matched Sample Including Lagged Incentives


Dependent Variable Option Delta ijt Option Vega ijt Option Delta ijt Option Vega ijt
5 6 7 8

Female i -0.181*** -0.151*** -0.040*** -0.040***


(-5.85) (-5.24) (-3.62) (-3.67)

CEO ijt 1.452*** 1.348*** 0.718*** 0.700***


(9.00) (9.12) (16.24) (17.15)
Non-CEO Corporate Titles ijt 0.441*** 0.340*** 0.426*** 0.391***
(3.06) (2.59) (9.83) (9.79)
Non-CEO Divisional Titles ijt 0.291** 0.208 0.385*** 0.344***
(1.99) (1.56) (8.85) (8.55)
Tenure ijt 1.344*** 0.929*** 0.005 0.086***
(15.08) (11.77) (0.33) (5.90)
Tenure ijt 2 -34.244*** -22.863*** -0.439 -2.369***
(-9.20) (-7.07) (-0.99) (-5.46)
Age it 0.866 0.665 0.144*** 0.153***
(1.64) (1.54) (3.52) (3.85)
Age it 2 -8.109 -6.178 -1.885*** -1.944***
(-1.47) (-1.37) (-4.90) (-5.20)
Inverse Mills Ratio it -- -- -- --
-- --
Option Delta ijt-1 -- -- 0.757***
(127.01)
Option Vega ijt-1 -- -- -- 0.707***
(118.58)

Constant ijt -3.057** -2.804*** -0.521*** -0.934***


(-2.48) (-2.70) (-3.60) (-6.58)

Firm-level Controls jt, jt-1 YES YES YES YES


Firm j & Year t FEs YES YES YES YES
N 10,920 10,920 67,768 67,768
Adj R2 0.716 0.689 0.853 0.818

38
Table 7: Female/Male Risk Premiums Gaps
This table reports results from the associations between salary and total compensation and lagged equity incentives.
Columns 1-2 present results when salary is the dependent variable. Columns 3-4 present results when total compensation
is the dependent variable. Sample period for this table is 1996-2010. All non-indicator variables are winsorized at the top
and bottom one-percentiles. All models include firm and year fixed-effects. The t-values, reported in parentheses, are
based on standard errors clustered at the executive level. The set of executive-level controls include job titles, tenure and
age.The set of firm-level controls include: Board_Sizejt, % Out_Dirsjt, Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, RET jt-1, Firm
Risk jt-1 , CAPEX jt-1, RD jt-1, MBt-1. ROAjt and RETjt are included when Total Comp is the dependent variable. ***, **, *
indicate significance at the p<0.01, p<0.5, p<0.10 level (two-tailed), respectively. Variables are defined in the Appendix.

Dependent Variable Salary ijt Salary ijt Total Comp ijt Total Comp ijt
1 2 3 4

Female i -0.102*** -0.104*** -0.103*** -0.119***


(-5.59) (-5.87) (-3.53) (-4.14)
Female i * Option Delta ijt-1 0.012** -- -0.002 --
(2.29) (-0.25)
Option Delta ijt-1 0.070*** -- 0.155*** --
(20.86) (33.56)
Female i * Option Vegaijt-1 -- 0.014** -- 0.002
(2.47) (0.23)
Option Vega ijt-1 -- 0.076*** -- 0.148***
(21.94) (30.01)

CEO ijt 0.708*** 0.710*** 0.871*** 0.891***


(34.36) (34.44) (30.37) (31.15)
Non-CEO Corporate Titles ijt 0.253*** 0.258*** 0.225*** 0.235***
(13.14) (13.34) (8.16) (8.52)
Non-CEO Divisional Titles ijt 0.173*** 0.177*** 0.103*** 0.109***
(8.84) (9.07) (3.67) (3.91)
Tenure ijt 0.001 0.022** -0.014 0.048***
(0.06) (2.02) (-0.90) (3.17)
Tenure ijt 2 0.817** 0.277 0.857* -0.700
(2.44) (0.84) (1.90) (-1.56)
Age it 0.130*** 0.138*** -0.020 0.012
(3.64) (3.89) (-0.48) (0.29)
Age it 2 -0.856** -0.908*** 0.142 -0.114
(-2.47) (-2.65) (0.36) (-0.29)

Constant ijt 4.221*** 4.172*** 5.280*** 5.111***


(40.18) (39.88) (35.94) (34.36)

Firm-level Controls jt, jt-1 YES YES YES YES


Firm j & Year t FEs YES YES YES YES

N 69,677 69,677 68,756 68,756


Adj R2 0.703 0.703 0.723 0.718

39
Table 8: Effect of Female Board Representation
This table reports results from estimation models that examine gender differences in flow compensation levels. Columns
1-2 present results from OLS models. Columns 3-4 include the Inverse Mills ratio from the first-stage IV probit reported in
Table 3 (Column 1). Columns 5-6 present results for the subsample of executive-female-years and their matched
executive-male-years determined by the first-stage propensity score logit reported in Table 3 (Column 2). Columns 7-8
present results after including lagged compensation to the models. Sample period for this table is 1997-2010. All non-
indicator variables are winsorized at the top and bottom one-percentiles. All models include firm and year fixed-effects.
The t-values, reported in parentheses, are based on standard errors clustered at the executive level. The set of executive-
level controls include job titles, tenure and age.The set of firm-level controls include: Board_Sizejt, % Out_Dirsjt,
Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, RETj-1t, Firm Riskjt-1, CAPEXjt-1, RDjt-1, MBt-1,. ROA jt and RETjt are included when
Total Comp is the dependent variable.***, **, * indicate significance at the p<0.01, p<0.5, p<0.10 level (two-tailed),
respectively. All variables are defined in the Appendix.

Main Analysis Including the Inverse-Mills Ratio


Dependent Variable Salaryijt Total Compijt Salaryijt Total Compijt
1 2 3 4

Female i -0.104*** -0.217*** -0.099*** -0.214***


(-9.10) (-10.70) (-6.52) (-7.99)

Female i * % Female Board jt 0.307*** 0.582*** 0.275*** 0.573***


(4.65) (5.02) (3.30) (3.74)
% Female Board jt 0.097*** 0.079 0.080 0.016
(2.84) (1.39) (0.74) (0.09)

CEO ijt 0.797*** 1.106*** 0.787*** 1.084***


(49.21) (41.74) (39.61) (35.03)
Non-CEO Corporate Titles ijt 0.252*** 0.306*** 0.255*** 0.285***
(17.11) (11.97) (14.37) (9.64)
Non-CEO Divisional Titles ijt 0.184*** 0.154*** 0.189*** 0.144***
(12.35) (5.97) (10.53) (4.82)
Tenure ijt 0.338*** 0.188*** 0.329*** 0.220***
(34.41) (12.63) (28.26) (12.47)
Tenure ijt 2 -7.860*** -4.107*** -7.521*** -4.740***
(-24.39) (-8.62) (-19.69) (-8.50)
Age it 0.280*** 0.256*** 0.326*** 0.325***
(8.00) (5.54) (7.37) (5.45)
Age it 2 -2.096*** -2.219*** -2.550*** -2.862***
(-6.11) (-5.08) (-5.86) (-5.09)
Inverse Mills Ratio it -- -- -0.013 -0.034
(-0.26) (-0.44)
Salaryijt-1 -- -- -- --

Total Compijt-1 -- -- -- --

Constant ijt 3.758*** 4.419*** 3.661*** 4.232***


(36.91) (28.57) (23.06) (17.53)

Firm-level Controls jt, jt-1 YES YES YES YES


Firm j & Year t FEs YES YES YES YES

N 89,082 81,514 62,145 56,986


Adj R2 0.637 0.679 0.639 0.682

40
Table 8 (contd)

Propensity-Score Matched Sample Including Lagged Comp


Dependent Variable Salaryijt Total Compijt Salaryijt Total Compijt
5 6 7 8

Female i -0.116*** -0.206*** -0.071*** -0.136***


(-7.78) (-7.32) (-9.18) (-8.55)

Female I * % Female Board jt 0.228** 0.446** 0.233*** 0.426***


(2.43) (2.53) (5.40) (4.69)
% Female Board jt 0.103 -0.128 0.050** 0.080
(1.03) (-0.66) (2.06) (1.61)

CEO ijt 0.791*** 1.116*** 0.498*** 0.707***


(18.25) (16.08) (29.96) (27.23)
Non-CEO Corporate Titles ijt 0.258*** 0.292*** 0.207*** 0.208***
(8.43) (4.88) (15.03) (8.51)
Non-CEO Divisional Titles ijt 0.190*** 0.144** 0.160*** 0.119***
(6.17) (2.39) (11.64) (4.86)
Tenure ijt 0.456*** 0.173*** -0.097*** 0.119***
(15.62) (3.95) (-11.87) (10.24)
Tenure ijt 2 -12.727*** -4.023** 2.710*** -2.644***
(-9.69) (-2.43) (11.56) (-7.58)
Age it 0.214** 0.342** 0.130*** 0.043
(2.44) (2.15) (6.08) (1.29)
Age it 2 -1.423 -2.838* -1.201*** -0.575*
(-1.61) (-1.76) (-5.83) (-1.85)
Inverse Mills Ratio it -- -- -- --

Salaryijt-1 -- -- 0.511*** --
(42.53)
Total Compijt-1 -- -- -- 0.381***
(48.72)

Constant ijt 3.927*** 4.487*** 1.953*** 3.237***


(15.75) (9.68) (24.06) (25.73)

Firm-level Controls jt, jt-1 YES YES YES YES


Firm j & Year t FEs YES YES YES YES

N 13,568 11,594 77,680 67,961


Adj R2 0.663 0.701 0.798 0.748

41
Table 9: First-Stage IV Estimations for Female Board Representation

This table reports results for first stage IV models that use: 1) the proportion of male board members with connections to
female directors through other boards (Adams and Ferreira, 2009); and 2) the proportion of female board members in the
same industry (2-digit SIC) excluding sample firms, respectively, as instruments for the proportion of female directors on
the board. Sample period for this table is 1997-2010. All non-indicator variables are winsorized at the top and bottom one-
percentiles. All models include firm and year fixed-effects. The t-statistics, reported in parentheses, are based on standard
errors clustered at the firm level. All models include firm and year fixed-effects. ***, **, * indicate significance at the
p<0.01, p<0.5, p<0.10 level (two-tailed), respectively. Variables are defined in the Appendix.

% Men with Female Board % Female Board Members


Connectionjt in Industryjt

Instrument jt 0.013 ( 2.20) ** 0.741 (14.79) ***

Board Size jt 0.001 ( 1.14) 0.001 ( 0.90)


% Outside Dirs jt 0.067 ( 5.48) *** 0.065 ( 5.64) ***
Ln(Sales) jt-1 0.003 ( 1.45) 0.004 ( 1.83) *
Leverage jt-1 - 0.009 (-1.17) - 0.007 (-0.98)
ROA jt-1 0.006 ( 0.50) 0.002 ( 0.19)
RET jt-1 - 0.001 (-0.35) - 0.001 (-0.49)
Firm Risk jt-1 0.003 ( 0.19) 0.000 ( 0.01)
CAPEX jt-1 - 0.034 (-1.64) * - 0.035 (-1.75) *
RD jt-1 0.009 ( 0.30) - 0.006 (-0.19)
MBt-1 - 0.000 (-1.03) - 0.000 (-0.94)

Constant jt 0.038 ( 1.77) * - 0.053 (-2.42) **

Firm j and Year t FEs YES YES

N 18,398 18,398
Adj R2 0.728 0.742

42
Table 10: Effect of Female Board Representation - IV

This table reports results from IV estimation models that examine the effect of female board representation on gender
differences in flow compensation. Columns 1-2 report results using the Adams-Ferreira (2009) instrument of the
proportion of male board members with connections to female directors through other boards. Columns 3-4 report results
using the proportion of female directors in the industry as the instrument. Sample period for this table is 1997-2010. All
non-indicator variables are winsorized at the top and bottom one-percentiles. All models include firm and year fixed-
effects. The t-values, reported in parentheses, are based on standard errors clustered at the executive level. The set of
executive-level controls include job titles, tenure and age.The set of firm-level controls include: Board_Sizejt, %
Out_Dirsjt, Ln(Sales)jt-1, Leverage jt-1, ROA jt-1, RET jt-1, Firm Risk jt-1 , CAPEX jt-1, RD jt-1, MBt-1. ROAjt and RETjt are
included when Total Comp is the dependent variable. ***, **, * indicate significance at the p<0.01, p<0.5, p<0.10 level
(two-tailed), respectively. # indicates significance at p<0.10 level (one-tailed). Variables are defined in the Appendix.

Instrument IV - % Men with Female Board IV - % Female Board Members


Connectionjt in Industryjt
Dependent Variable Salaryijt Total Compijt Salaryijt Total Compijt
1 2 3 4

Female i -0.206*** -0.214*** -0.152*** -0.252***


(-6.58) (-3.96) (-6.82) (-6.67)
Female i * % Female_Board jt 1.426*** 0.739# 0.827*** 1.031***
(4.83) (1.49) (4.23) (3.25)
% Female_Board jt 1.686* 3.120* 0.050 -0.071
(1.73) (1.76) (0.31) (-0.24)

Constant ijt 3.706*** 4.294*** 3.759*** 4.421***


(34.01) (25.50) (36.85) (28.57)

Executive-level Controls it YES YES YES YES


Firm-level Controls jt, jt-1 YES YES YES YES
Firm j & Year t FEs YES YES YES YES

N 89,082 81,514 89,067 81,514


Adj R2 0.637 0.679 0.637 0.679

32
Appendix: Variable Definitions

Executive Characteristics:
Femalei = Indicator variable equal to one, if executive i is a female.
Salaryijt = the salary executive i receives at firm j in year t
Total Compensationijt = Sum of the salary, bonus, cashed-in LTIPs, value of stock and option grants and other compensation
executive i receives at firm j in year t
Option Deltaijt = $ change in the executive is wealth for a 1% change in the stock price of firm j in year t (option
grants only).
Option Vegaijt = $ change in the executive is wealth for a 1% change in the standard deviation of returns of firm j in
year t (option grants only).
Age it = Executive is age in year t.
Tenureijt = Executive is tenure at firm j in year t (Executive is tenure in a top-paid position at firm j in year t
when the JOINED_CO field is missing).
CEOijt = Indicator variable equal to one if executive i covers the CEO position at firm j in year t.
Non-CEO Corporate Titlesijt = Indicator variable equal to one if executive i covers at least one non-CEO corporate (CFO, COO,
Other Chief, President, Vice-President, Chairman, Vice-Chairman) role at firm j in year t.
Non-CEO Divisional Titles ijt = Indicator variable equal to one if executive i only covers divisional roles (Divisional Chief President,
or Chairman) at firm j in year t.
Other Titlesijt = Indicator variable equal to one if executive i covers an Other position (e.g., treasurer, secretary)
only at firm j in year t.
MBA i = Indicator variable equal to one if executive i has a MBA degree (matched sample).
Ivy-League i = Indicator variable equal to one if executive i attended an Ivy League school (matched sample).

Firm Characteristics:

% Female_Boardjt = % female directors on firm js board in year t.


% Female_Out Dirjt = % outside directors who are female on firm js board in year t.
Board Sizejt = Number of directors on firm js board in year t.
% Outside Dirsjt = Proportion of outside directors on firm js board in year t.
Ln(Sales)jt-1 = Natural log of sales (Compustat Data sale) for firm j in year t-1.
Leverage jt-1 = Long-Term + Current Liabilties/Assets (Compustat Data Items dltt + dlc/ at) for firm j in year t-1.
ROA jt (jt-1) = Return-on-assets (Compustat Data Item 18 / Compustat Data Item 6) for firm j in year t (t-1).
RET jt (jt-1) = Buy and hold stock return for firm j over year t (t-1).
Firm Risk jt-1 = Log(Variance of firm js daily stock returns over year t-1)
CAPEX jt-1 = Net Capital Expenditures/Assets (Compustat Data Items capx sppe/ at) for firm j in year t-1.
RD jt-1 = R&D Expenses/Assets (Compustat Data Items Max (0,xrd) / at) for firm j in year t-1.
MBt-1 = Market to book value of equity (Compustat Data Items cscho * prcc_f / ceq) for firm j in year t-1.
FIRMj = Firm indicator variables.
YEARt = Year indicator variables.

32