Journal Article

CEO-to-employee pay ratio and CEO diversity

Bardos, Katsiaryna Salavei, Alan, Nazli Sila, Shelkova, Natalya Y

2021

Overview

PurposeThe motivation behind Section 953(b) of Dodd–Frank Act was the increasing pay inequality and supposed CEOs' rent extraction. It required public companies to disclose CEO-to-employee pay ratios. Using the ratios reported by S&P 1500 firms in 2017–18, this paper examines whether companies led by women and minority CEOs have lower ratios than those led by white male CEOs.Design/methodology/approachThis paper uses multivariate regression along with a matched sample analysis to examine whether female and minority CEOs have higher CEO-to-employee pay ratios compared to male and white CEOs, controlling for other determinants of pay ratios.FindingsResults indicate that CEO-to-employee pay ratios are 22–28% higher for female CEOs compared to their male counterparts, controlling for other determinants of pay ratios. There is, however, no statistically significant difference between the pay ratios of minority vs white male CEOs. Minority female CEOs have lower CEO-to-employee pay ratios than white female CEOs. Consistent with literature, larger and more profitable firms have higher CEO-to-employee pay ratios.Originality/valueWhile prior studies on determinants of CEO-to-employee pay ratios have used either industry-level or self-reported data for a small subset of firms (resulting in selection bias), this paper uses firm-level data that are available for all S&P 1500 firms due to new disclosure requirements due to the Dodd–Frank Act Section 953(b). Moreover, this is the first paper to test whether gender or ethnicity of a CEO affects within-firm pay inequality.

• Publisher: Emerald Publishing Limited,Emerald Group Publishing Limited
• Subject: Bias / Chief executive officers / Employees / Ethnicity / Executive compensation / Females / Gender / Inequality / Labor market / Leadership / Management styles / Minority & ethnic groups / Multiculturalism & pluralism / Productivity / Ratios / Wall Street Reform & Consumer Protection Act 2010-US / White people