Julia Barry
October 29, 2012
Econ 398 Running Literature Review
Gender Differences in Executive Compensation
Data shows that women are still continuing make less money than men and
hold fewer jobss in high-ranking positions within firms. For my capstone I would
like to investigate what drives these differences, how they have improved over time
and what possible steps could be taken to help improve them more for the future.
In looking at this issue, I plan to look at both pay and the types of positions that
women hold. Because the wage gap has decreased significantly, looking at what is
driving those changes could be beneficial to making future improvements for
women in the work place. From the literature I have read, looking at CEO’s and
executive compensation is a good way to investigate gender wage gaps because men
and women that hold positions at higher levels most likely have similar qualities in
career motivation and education when there could be discrepancies between the
genders at other occupational groups. Explanatory factors I would like to
investigate are size of firm, age and seniority, and female decision in the matter. The
last explanation is most interesting because it could be that women hold fewer
positions because they choose to exit the labor market, which may actually make it
harder for other women.
The Gender Gap in Top Corporate Jobs. Marianne Bertand and Kevin Hallock.
This paper is one of the first to investigate pay gaps between men in women
specifically in high-level executive positions. The data set they use ranges from
1992 to 1997 and specifically takes the Standard and Poor’s ExecuComp data on the
top five highest paid executives of firms. The data set covers a wide range of firms
from different industries and of varying sizes allowing the authors to look at more
than one area of the compensation gap. While the sample is large enough to capture
a decent amount of executive women, the percentage is still small as women make
up only 2.5 percent of the sample. The first regression the authors run finds that
Women earn 45 percent less than men at executive positions. The authors further
investigate what is driving this wage differential which is what is most interesting to
my topic. They find that most of this wage gap can be explained by the fact that
women typically work for smaller companies making their earning less through
options. Another explanatory factor the authors find is that women typically are
younger in age and have less seniority possibly causing their wages to be lower.
When taking into account these two factors, the authors find that the wage gap falls
within 5 percent. They conclude that this does not rule out discrimination but does
demonstrate improvements to female representation in the executive level.
Women-Led Firms and the Gender Gap in Top Executive Jobs. Linda Bell.
Linda Bell’s paper expands on Bertand and Hallock’s paper using a similar
data set but extending the time period. Using similar regressions with OLS, fixed
effects and probit, she is able to expand on their data because since 1997 when the
previous article’s data ends to 2003, many more women have increased in ranks
among top executives making the sample much larger. In addition to using the
ExecuComp data like Bertand and Hallock, Bell also uses data on Board composition
from IRRC. Bell’s findings lower the percentage income gap found in Bertand and
Hallock’s article going from a 45 percent gap to a 25 percent gap. Like their
methodology, Bell then control for firm size, industry and title bringing the gap to 713 percent. This section of her paper follows closely with Bertand and Hollack and
really just incorporates the increased sample size. Where she expounds is on
whether a female led firm impacts how many women hold executive titles and
whether their composition is any higher. She finds that companies with a female
CEO or with an even stronger connection companies with a females board member,
have more women in executive positions and those women typically receive higher
compensation than women at similar companies. This pertains to my paper because
as more and more women enter the work force, this data indicates that it could
improve the wage gap.
Selling Women Short: A research Note on Gender Differences in Compensation on
Wall Street. Louise Marie Roth.
Roth looks at a study done by Morgan, which finds that with the engineering
profession, women do not face wage discrimination. However, Roth hypothesizes
that this does not hold true for the financial services industry and looks at how
women specific characteristics on Wall Street may create this compensation gap
where with other professions women face greater equality. Roth gives possible
characteristics of the financial services industry, which may contribute to women’s
inequality. One factor could be that the highest ranking and paying positions in
finance are typically very client facing, meaning they mainly interact with other high
level professionals, like CEOs of corporations which have historically been male.
Roth basically argues that client preferences for working with males could inhibit
women from holding high-level positions, but this discrimination may not come
from inside the firm but rather be a factor from the client. She also demonstrates
that the pay structure of financial industries may also contribute. Because a good
portion of compensation is through bonuses, it is up to the discretion of
management, which can allow for wage discrimination.
Her data comes from business school graduates who also worked in the main
firms on Wall Street during the early 1990’s which was when women really began to
have a greater presence within the industry. Advantages to using business school
data are that it takes into account human capital and organization prestige. Also
upon graduating it assumes graduates face similar market conditions. Basically
using business schools controls for many other variables, which could be driving the
income gap. Other controls she does incorporate are family factors like children and
marital status. In addition which areas of financial services they work in was
controlled for by dummy variables as well.
Her results indicated that both men and women from the sample had similar
human capital characteristics because of similar educational achievements and
experience. However, she did find that women did participate in different areas of
financial services, which was statistically significant. The raw findings
demonstrated that women made 60.5% of the earning of the men they graduated
business school with. Further controlling for human capital and areas of finance,
54% of the gap is explained. Most interesting from the result is that marital status
and parental status have no significant effects. The most important factor seemed to
be which area of finance the woman worked in, especially if the area was male
dominated.
In conclusion, she found that women earn less and that the most likely
driving factor of this is differing areas of finance. She also continues to emphasize
that male clientele could continue to be driving this but I don’t believe she actually is
able to address it empirically. The data she uses with business schools is able to
control for many human capital factors, which is helpful. Lastly she concludes that
just because financial services is male dominated, doesn’t mean it explains the
difference in wages because engineering is male dominated as well. Morgan found
however, that in engineering women earned comparable wages. The factor was not
explained by her study.
--- for background, she also has a good section on why compensation is the
best measure of success.
Dynamics of the Gender Gap for Young Professionals in the Financial and Corporate
Sectors. Betrand, Goldin and Katz.
This study also using business school data because it controls for human
capital characteristics. However, this study just looks at the University of Chicago’s
Booth School of Business through a survey study. I don’t really know if this is a
positive or negative factor of the data. Looking at the MBA data, they observe how
women and men begin their careers at very similar incomes but it begins to diverge
in the years following business school. Factors they find to explain these are
differences in training prior to receiving their MBA, differences in career
interruptions (like childbirth), and differences in hours worked. Their data on
women and men’s human capital background differs from Roth’s. They analyze
educational background further and find that men typically take more finance
classes and have higher GPAs, which could be a factor. They speculate that this
doesn’t actually have an effect on earning but has an effect on training, which in turn
affects earnings. They also find women have more career interruption (most likely
due to childbirth) and work less hours or are more likely to be self employed or part
time employed. They also find that children are the main contributor to working
less and career interruptions. Women with children work 24 percent less hours
where childless women work only 3.3 percent less hours. They also investigate how
spousal earning affects women’s labor outcomes. Those with higher earning
spouses reduce their labor supply much more than women whose husbands may
not make as much. In their findings, the combination of spousal earnings with
children creates a huge factor for decreasing women’s labor supply. They find
however, that if there are no kids, high spousal income could serve as a compliment
and increase women’s labor supply. The fact that job interruptions also drive to
lower wages demonstrates that children are another important factor as they are
the main driver of job interruptions.
One important thing this study points out is women’s choices in the matter.
The financial sector has incredibly huge time commitments, which may not be
compatible with family constraints. Unlike being a physician or lawyer where they
have more control over their hours, the financial sector could be harder to balance
with a family. She most likely may choose to exit. This is supported by the results
from combining the impacts of children and high spousal income. They also
acknowledge while it may be women’s choice, women could be making this choice
because they face lower incomes than men already so working is less worth while.
The idea that financial sector creates an environment where it is harder to balance
family and work life could connect with Bell’s paper on women led firms. As more
women gain a presence in the financial services industry, women higher up can
mentor and create better forms of aid to keep women working even after having
kids.
Gender Differences in Competition. Niederle and Vesterlund.
Research on the gender compensation gap in the financial sector has sited
the possibility that this could be due to women’s aversion from highly competitive
positions and scenarios in the financial sector. (Bertrand, Goldin, Katz., 2) In
Niederle and Vesterlund’s paper they investigate three aspects of women’s aversion
to competition, two of which could prove pertinent in my paper. The results from
the first study they examined found that women and men had similar performances
is the environment was noncompetitive. However, they found that in moving from a
non-competitive environment to a competitive one, men improved their
performance while women’s performance stayed the same. If women were put in a
competitive environment against just other women, their performance did improve
suggesting that their aversion towards competition may just be towards
competition with men and not competition all together. In their second study,
women found that were less likely to enter a competitive scheme in general if given
the choice. On the whole, they attributed these differences to men being
overconfident in their own abilities and women’s preference for a non-competitive
environment. The last study they did involves affirmative action for women
participation in competition, which I don’t believe pertains to my paper. However,
the studies on women’s competitive behavior in relation to men’s are relevant. If
women shy away from competition, they may not prefer to work in the highly
competitive top positions in financial firms, which could contribute to their low
representation at the top. Secondly, women may not be as competitive with
negotiations with wages, also contributing to the compensation gap.
Pay Differences among the Highly Paid: the Male-Female Earnings Gap in Lawyers’
Salaries. Wood, Corcoran and Courant.
While my topic is specific to the earnings gap in top executive positions, the
gender compensation gap with female and male lawyers also sheds light on another
professional industry. Wood, Corcoran and Courant investigate graduates from
Michigan Law School from 1972-1975. From 15 year surveys that are given through
the University, they have data on past work experience, the current labor market
and their marriage and parental status. As with other studies that examine graduate
students, they believe that being a law school graduate controls for several human
capital variables. Their findings were that women make a .61 ratio of what men do
and work at a .91 ratio to men when surveyed 15 years out. Like Bertrand Goldin
and Katz, they find that leaving graduate school the pay gap between men and
women was not substantial but after 15 years it had obviously grown significantly.
Also similar to their paper, they find that one of the biggest factors driving the
compensation gap was either part time pay or reduced hours working. The
reduction of time on the job and interruptions obviously goes along with childbirth
as seen in previous research. Like research on the financial services industry, this
study also found that different job settings or functions within law, for example
working for the government versus a large private firm, can account for some of the
income gap. One contradiction to research done on top executive pay to this study
on lawyers is that this study found that spousal earnings do not effect the wife’s
choice to reduce hours worked where most literature on executive pay does find
this to be a important variable. In concluding they find that women did seem to
make the trade of for parenting even when it may not be the best decision
economically but “for the joys of parenting”. They find that male lawyers earning
are higher and grow at a faster rate which may indicate that in the law occupation
men and women are compensated differently. These differing levels of
compensation could make women more likely to partake in parenting making their
results compounding factors. One thing to be kept in mind with this study is that it
looked at the 1970s and 80s where as most literature done on top executive pay was
predominately on the 1990s and after.