April 2015

A fascinating report released by the Federal Reserve Bank of New York in March 2015 examines gender differences in executive compensation. The report, titled “Gender and Dynamic Agency: Theory and Evidence on the Compensation of Top Executives,” used data from Standard & Poor’s ExecuComp database to look at the compensation of 40,704 executives (1,312 of whom were female).

The key findings of the report are:

• There is no link between firm performance and the gender of top executives. Thus, the gender pay gap at the executive level cannot be explained by performance differences.
• 93% of the gender pay gap among top executives is accounted for by the fact that female executives receive a far lower percentage of incentive pay — namely, stock options and stock grants — as a percentage of total compensation.
• Women’s compensation has “lower pay-performance sensitivity,” meaning that they gain far less from the positive performance of their firms. When a firm’s value increases by $1 million, it leads to a $17,150 increase in firm-specific wealth for male executives and a $1,670 increase for females.
• In contrast, women suffer more when a firm loses value: “A 1% increase in firm value generates a 13% rise in firm specific wealth for female executives, and a 44% rise for male executives, while a 1% decline in firm value generates a 63% decline in firm specific wealth for female executives and only a 33% decline for male executives.”

A critical point is that the authors showed that there was no link between . . .