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Gender and Dynamic Agency: Theory and Evidence on the Compensation of Top Executives

Stefania Albanesi (), Claudia Olivetti () and María José Prados ()

No 10491, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We document three new facts about gender differences in executive compensation. First, female executives receive lower share of incentive pay in total compensation relative to males. This difference accounts for 93% of the gender gap in total pay. Second, the compensation of female executives displays lower pay-performance sensitivity. A $1 million dollar increase in firm value generates a $17,150 increase in firm specific wealth for male executives and a $1,670 increase for females. Third, female executives' compensation is more sensitive to bad firm performance and less sensitive to good firm performance. We find no link between firm performance and the gender of top executives. We discuss evidence on differences in preferences and the cost of managerial effort by gender and examine the resulting predictions for the structure of compensation. We consider two paradigms for the pay-setting process, the efficient contracting model and the ``managerial power'' or skimming view. The efficient contracting model can explain the first two facts. Only the skimming view is consistent with the third fact. This suggests that the gender differentials in executive compensation may be inefficient.

Keywords: gender differences in executive pay; incentive pay; pay-performance sensitivity (search for similar items in EconPapers)
JEL-codes: G3 J31 J33 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-bec and nep-hrm
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Chapter: Gender and Dynamic Agency: Theory and Evidence on the Compensation of Top Executives (2015) Downloads
Working Paper: Gender and dynamic agency: theory and evidence on the compensation of top executives (2015) Downloads
Working Paper: Gender and Dynamic Agency: Theory and Evidence on the Compensation of Top Executives (2015) Downloads
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