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What Will It Take to Close the Gender Pay Gap for Good?

The numbers are improving slightly, but it won’t be possible without mandatory disclosure.

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Even at the highest-ranking positions in U.S. corporations, it’s clear there's more work to be done to narrow the gender pay gap--and the gender gap overall.

In the topmost roles of the C-suite, men outnumber women by 7 to 1, and the women that do hold these top positions earn only 85 cents for every dollar earned by men, according to the most recent proxy disclosures by Russell 3000 companies. As shown in the chart below, these numbers are only fractionally better than they were five years ago.

Exhibit 1

Under the extraordinary burden that coronavirus pandemic restrictions have placed on families, McKinsey and Lean In’s Women in the Workplace 2020 survey finds that 1.5 times more women than men at the senior corporate level are considering downshifting their careers or leaving the workforce. This could have a profound impact on future workforce demographics and end up unraveling hard-won, decades-long progress on workplace gender equality.

For our paper “The Gender Gap in the C-Suite,” we used Morningstar’s database of corporate governance and executive pay data (which companies are required to provide investors in annual proxy materials) to track compensation paid to named executive officers, or NEOs, of 2,384 Russell 3000 companies with disclosures for fiscal years 2015-19. Named executive officers include CEOs, CFOs and the next three highest-paid executive officers.

The Gender Gap at the Top is Only the Tip of the Iceberg
The gender gap at the top of the corporate ladder is the consequence of bias across practices like recruitment, promotion, employee retention, and talent development. Gender gap research across countries and company sizes consistently finds that the higher up the corporate hierarchy we look, the smaller the proportion of women we find.

The number of women at the senior executive level is making only incremental improvements: Women held 12.2% of all NEO positions in 2019, up from 9.4% in 2015, and they held only 6% of CEO positions in 2019, up from 4.1% in 2015. Still, the chart below shows that less than half of the companies we studied had any female NEOs and only 12% had more than one female NEO.

Exhibit 2


Beyond the traditional “glass ceiling” metaphor, there are other more apt explanations for the gender imbalance at the senior level: “glass walls,” “the broken rung,” and “the leaky pipeline.” These concepts speak to the fact that women more often hold positions that don’t take them to the top, don’t pay top dollar, and don’t offer as much of a share in the upside of corporate performance.

Disparities compound over successive layers in the corporate ladder and across the economy. McKinsey and Lean In’s Women in the Workplace 2019 survey, which advances the "broken rung" theory, found that only 72 women for every 100 men are promoted or hired to a managerial role. This costs investors and the economy heavily, to the tune of trillions of dollars. It also represents a missed opportunity, as research increasingly links diversity to corporate outperformance.

The Roles Held by Women Explain Part of the Senior Executive Pay Gap
A Wall Street Journal analysis of senior executive pay data by Equilar finds that “men on the way up overwhelmingly get the management jobs in which a company’s profits and losses hang in the balance” whereas “[women] often fill roles such as head of human resources, administration or legal.”

Our data shows that women held 14% of all non-CEO NEO positions in 2019, but they held only 11% of COO and CFO roles, combined. Rather, women were better represented in roles like general counsel, company secretary, chief legal officer, chief administration officer, and chief marketing officer, where they made up 25% of roles.

Significantly, even though the latter group made up a larger percentage, the former grouping (the COO and CFOs) accounted for three times the raw number of NEOs in 2019 as the latter grouping. The COOs and CFOs also earned around 29% more, on average.

Variable pay linked to share performance makes up the largest proportion of NEO pay. However, this is more the case for some roles than others, and NEOs who have a larger portion of their pay in variable components generally take home a greater overall sum. For instance, across the five years of the study, executives carrying the title “chief operating officer” (a position held by women 8% of the time) earned 4-9 percentage points more in stock-based awards than executives carrying the title “chief administrative officer”--a role filled by women 30% of the time in 2019. (These calculations do not include NEOs who are also CEOs.)

It’s interesting to note that female CEOs earned a small premium over their male counterparts from 2017-19. In 2019, women in the CEO role earned 103 cents for every dollar earned by male CEOs. However, because the number of female CEOs increased by 48% over the five-year period we studied, this number likely reflects signing bonuses, or “golden hellos” (typically paid in the first year).

What’s Needed to Address Gender Pay Gaps
Under SEC rules, U.S. corporations are not required to publicly disclose workplace diversity metrics or diversity-based pay breakdowns. And, therefore, very few do. Yet, there are at least two strong reasons why public disclosure would better serve investors and the economy:

  1. Investors need to know that equal pay is good for business and the pay gap is a growing source of risk.
  2. Measuring and tracking can catalyze change in the right direction.

Companies that disclose diversity and pay gap data--Citigroup (C), for example--are receiving praise for being transparent. These kinds of disclosures are largely thanks to persistent shareholder advocacy efforts.

Shareholder-proposed proxy ballot items calling for gender pay gap reporting at large corporations--which, in 2020, extended to include both the gender and racial pay gap--have become a regular feature of the proxy calendar. One such resolution was voted at Oracle (ORCL) in November 2020 and was supported by more than 80% of votes cast by the company’s outside, non-affiliated shareholders.

C-suite executives are by no means underpaid--they earned $2.03 million in pay at the median and $3.46 million on average in 2019. Still, the fact that evidence of a gender pay gap persists even at the highest level supports investors’ calls for mandatory public disclosure of workforce diversity and pay gap data.

Jackie Cook does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.