27 September 2023

Why female managers earn less under female CEOs

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Kim Elsesser* says it’s because organisations are gaming diversity.

It may seem logical that top female managers would benefit from having a female CEO at the helm of their organisation, but a new study suggests just the opposite.

A female CEO may be bad news for senior female managers, at least when it comes to their paycheck.

The researchers believe that companies with a female CEO may lack the incentive to invest in other female managers.

The study, published in the Journal of Applied Psychology, looked at 20 years of pay data on the top management teams of the largest 1,500 U.S. companies (U.S. public companies are required to disclose information on the compensation of their CEOs and the four other most highly paid managers—this was the data used for the study).

The researchers found, “If a female top manager has a female CEO, her compensation is roughly 16 per cent lower than it would have been if she had a male CEO.”

It’s important to note that this pay discrepancy is an average finding and certainly not true at every company.

Male top managers earned the same regardless of whether they worked for a male or female CEO.

Why do these female managers earn a whopping 16 per cent less when a woman is at the helm of the company?

The researchers tested two competing theories.

One possibility suggests that women in power are more critical of female subordinates, and thus a female CEO may be inclined to pay other women less.

Women in authority positions who treat female subordinates poorly are often called queen bees.

But the researchers concluded that the data did not suggest the female CEOs were behaving like queen bees, and the CEOs were likely not responsible for female managers receiving less pay.

Instead, they found evidence that organisations with a female CEO have less incentive to retain other senior female managers.

Firms are typically in favour of gender diversity and often make an effort to have some female presence in top management.

Firm gender diversity efforts often include paying more to a top female manager to attract and retain her.

However, if that same organisation already has a female CEO, that CEO may be a sufficient symbol of the firm’s gender diversity goals.

As a result, there may be less interest in retaining other senior female managers.

The researchers explain, “A female CEO may thus render redundant the presence of other women on the [top management team] for diversity purposes, allowing the firm to pay them less than it would have, had the firm had a male CEO.”

In other words, once some gender diversity has been achieved at the top levels of the organisation, there’s little incentive to retain other women at the top.

Organisations are not interested in true gender equity, but in having the minimum number of women needed to appear gender diverse.

This notion that organisations strive for the minimum gender diversity needed to avoid criticism and backlash has been found in other research.

One study examined all directors seated on the boards of S&P 500 companies.

The researchers found that boards were “gaming diversity” to please potential critics by appointing exactly two women to their boards.

In fact, 45 per cent more boards include exactly two women than would be expected by chance.

Once organisations had two women on their corporate board, it seemed they had little incentive to add a third.

The study authors named this phenomenon of having exactly two women on corporate boards “twokenism.”

Corinne Post, a management professor at Villanova University who was not involved in the study on CEO gender and top manager pay, proposed a more magnanimous potential explanation for why female managers may earn less under female CEOs.

She says that organisations that have female CEOs may be more committed to gender equity and therefore may be more likely to be fast-tracking women.

Women who are fast-tracked to senior management may earn less than other employees at the same level simply because they haven’t spent as much time getting there.

Regardless of which theory is correct, the root problem is that there are still too few female CEOs and female managers.

As women’s presence in top management becomes less of an anomaly, hopefully, any decisions about fast-tracking women or how to game diversity goals will no longer be relevant.

*Kim Elsesser is a contributor at Forbes covering women’s issues at work, including the wage gap, sexual harassment and female leadership.

This article first appeared at forbes.com.

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