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Gender and Dynamic Agency: Theory and Evidence on the Compensation of Top Executives

Author

Listed:
  • Stefania Albanesi

    () (Federal Reserve Bank of New York)

  • Claudia Olivetti

    () (Boston University and NBER)

  • Maria Jose Prados

    () (University of Southern California)

Abstract

We document three new facts about gender differences in executive compensation. First, female executives receive lower share of incentive pay in total compensation relative to males. This difference accounts for 93% of the gender gap in total pay. Second, the compensation of female executives displays lower pay-performance sensitivity. A $1 million dollar increase in firm value generates a $17,150 increase in firm-specific wealth for male executives and a $1,670 increase for females. Third, female executives' compensation is more sensitive to bad firm performance and less sensitive to good firm performance. We find no link between firm performance and the gender of top executives. We discuss evidence on differences in preferences and the cost of managerial effort by gender and examine the resulting predictions for the structure of compensation. We consider two paradigms for the pay-setting process, the efficient contracting model and the "managerial power" or skimming view. The efficient contracting model can explain the first two facts. Only the skimming view is consistent with the third fact. This suggests that the gender differentials in executive compensation may be inefficient.

Suggested Citation

  • Stefania Albanesi & Claudia Olivetti & Maria Jose Prados, 2015. "Gender and Dynamic Agency: Theory and Evidence on the Compensation of Top Executives," Working Papers 2015-004, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2015-004
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    File Function: First version, March, 2015
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    References listed on IDEAS

    as
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    Cited by:

    1. Flabbi, Luca & Macis, Mario & Moro, Andrea & Schivardi, Fabiano, 2014. "Do Female Executives Make a Difference? The Impact of Female Leadership on Gender Gaps and Firm Performance," IZA Discussion Papers 8602, Institute for the Study of Labor (IZA).
    2. World Bank, 2017. "Republic of Armenia Leveling the STEM Playing Field for Women," World Bank Other Operational Studies 26766, The World Bank.
    3. repec:bla:indres:v:56:y:2017:i:3:p:427-458 is not listed on IDEAS

    More about this item

    Keywords

    sensitivity; performance incentives; managerial power; skimming; efficient contracts;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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