Female executives benefit far less than their male counterparts from an increase in their firm’s market value, and they are more exposed to a decline, according to a new study from the Federal Reserve Bank of New York.
Researchers from the New York Fed, Boston University and the University of Southern California found that a 1% rise in a company’s value corresponds to a 44% rise in firm-specific wealth for male executives. But the increase is only 13% for women, while a 1% drop in firm value translates into a 63% drop in firm-specific wealth for female executives, compared with only a 33% decrease for men.
Firm-specific wealth includes cash compensation, stock options, and grants and other incentives. Some 93% of the difference in total pay between male and female executives is rooted in incentive pay, the study says.
“Overall, changes in firm performance penalize female executives while they favor male executives,” the authors conclude.
This gender gap, the paper theorizes, does not reflect executive performance but “different degrees of managerial power of female and male executives,” with women “less entrenched” than men and exerting less control over their compensation due to limited access to informal networks, gender stereotyping, and an inhospitable corporate culture, along with their younger age and lower tenure.
“Men, on the other hand, who are more entrenched in an organization and can cash in favors after years in the industry, are more likely to be able to steer their pay in a way that’s more favorable for them,” Bloomberg noted.
Co-author Stefania Albanesi told Bloomberg that one way to close the gender gap may be increasing transparency in an organization so women can tell how their pay is set relative to others in similar positions.
The sooner you get more transparency, the better, because the disparities build year after year, Albanesi said, adding, “The accumulation is going to be there even when women get promoted, and also possibly if you move to another firm, because usually your past compensation is used in some degree. “These differences can be very, very persistent.”