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Board gender diversity and CEO compensation: Strengthening governance and pay-performance sensitivity

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  • Mishra, Chandra S.

Abstract

This study examines the relationship between female directorship and CEO compensation, focusing on pay-performance sensitivity, total compensation, and equity-based pay. We address endogeneity issues, CEO compensation persistence, and unobserved heterogeneity using a multi-level fixed effects estimator, dynamic panel models, system GMM, cross-lagged structural panel models, and instrumental variables models. Our findings indicate that female directorship is positively associated with CEO pay-performance sensitivity and equity-based compensation but negatively associated with total CEO compensation. This suggests that female directors emphasize performance-based incentives over fixed pay, reinforcing a stronger alignment between CEO pay and shareholder value. Further, CEO power and managerial ability significantly moderate this relationship. When the CEO is the board chairman, female directorship is positively associated with total and equity compensation. Similarly, higher managerial ability strengthens the relation between female directorship and equity-based pay while weakening its negative association with total compensation. Our findings contribute to corporate governance, agency theory, and resource dependence theory by demonstrating that board gender diversity enhances monitoring effectiveness and alters executive compensation structures to improve firm accountability and performance alignment. These insights are important for board composition policies, gender diversity mandates, and executive pay design.

Suggested Citation

  • Mishra, Chandra S., 2025. "Board gender diversity and CEO compensation: Strengthening governance and pay-performance sensitivity," The Quarterly Review of Economics and Finance, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:quaeco:v:102:y:2025:i:c:s106297692500050x
    DOI: 10.1016/j.qref.2025.102009
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