The Significance of Gender in Explaining Senior Executive Pay Variations: An Exploratory Study

Abstract

Gender pay equity has been a point of interest to the public as well as to business and economic researchers for many years. Recently, Catalyst, an organization established to promote women in business, reported that the gender pay gap among top corporate executives was significant with women executives paid only 68 percent of the earnings of their male counterparts (Catalyst, 1998). The objective of our research is to examine more fully the gender pay gap among senior executives. We seek to determine the extent to which variations in compensation may be explained by the individual executive's gender. At the same time, we take into account other possible determinants such as company size, company performance, corporate pay-scale philosophy, manufacturing sector, the presence of top women executives, and executive responsibility. Our research presents two models, one which analyzes the determinants of annual executive pay and a second which examines the determinants of total executive pay. The latter includes components of long-term compensation in addition to annual pay. Within each model, we provide a number of specifications of the earnings equations. Our results show that various corporate and executive attributes influence both executives' annual compensation and their total compensation. Gender is found to be a statistically significant independent variable in our estimation of total executive pay but not in our estimation of annual pay. In the following section we present background material for this study. We discuss previous research concerning the extent and sources of the gender pay gap, the role of equal pay legislation on the pay gap, and the determinants of chief executive officer salaries. We conclude the background section by describing our model. Next we discuss variables used in the model and data included in our empirical analysis. We then proceed to a discussion of our empirical analysis. We end with a discussion of the limitations and conclusions of our study. BACKGROUND Extent and Sources of the Gender Pay Gap Research efforts over more than three decades have attempted to disentangle factors that account for the gender pay gap and, more recently, its decline. Blau and Kahn (1997) presented Bureau of Labor Statistics data showing that the female-to-male ratio of median weekly earnings of full-time workers, which was 64.2 percent in both 1967 and 1979, rose to 74 percent by 1991. According to Blau and Kahn, two important factors in explaining the pay gap and its decline are occupational distributions of men and women and differences in their age-experience profiles. With regard to differences in the occupational choices of men and women, Groshen (1991) examined five specific industries and found that the proportion of the pay gap due to occupational differences within these industries ranged from 11 to 26 percent. In our study, occupation is essentially held constant since we are examining a single occupation, corporate executives. The low representation of women among executives in large corporations raises the issue of the glass ceiling. Blau et al. (1998) reported that in 1972 almost 12 percent of all men were classified in executive, administrative, and managerial occupations, while only 4.6 percent of women were in such occupations. By 1995 these percentages had increased to 14.6 percent of men and 12.8 percent of women. Despite these remarkable gains for women in management, Daily et al. (1999) noted that there were only two female CEOs among Fortune 500 companies in 1987 and still only two in 1996. By the end of 1999 there were three. In addition to occupational distributions, differences in experience levels of men and women have figured prominently in explanations of the gender pay gap. In a longitudinal study of gender and pay, Blau and Kahn (1997) found that women had less full-time experience; that deficiency in experience explained about one third of the pay gap in 1988. …

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