Mind the (Gender Pay) Gap: The role of Board Gender Composition

Executive Summary

This project examines the impact of the corporate board gender composition on pay-related outcomes within UK companies with at least 250 employees. Outcomes of interest are: wages for men and women, the company-reported gender pay gap (GPG), worker representation and interest in the mandatory GPG reporting. This project also investigates how these effects vary across companies with different levels of productivity.

This study contributes to the empirical literature on the importance of female directors in favour of other female employees. Our analysis shows that female directors act as a signal: they indicate if an employer is genuinely vested in compensating their teams equitably. Female directors are a positive work-culture element towards equal opportunities that shift norms and may affect worker preferences.

Data and Methodology

• The study uses rich administrative data from UK companies with at least 250 employees starting from 2017/18.
• To alleviate concerns related to the appointment of directors, we proceed with an econometric approach that accounts for the share of female directors aggregated at a regional level. This affects the female directors at the company level, but it does not affect the individual firm-level wage setting.

Findings

1. Reduction in Gender Pay Gap

Appointing more female directors in corporate boards is associated with a reduction in the gender pay gap by more than 3%. How?

• Women directors improve pay outcomes (e.g. wages, bonus, promotion potentials) for female employees.
• Women directors treat the mandatory GPG reporting more seriously than just a box-ticking exercise.

2. Enhanced impact in higher-productivity firms

The positive effect of board gender diversity on reducing the GPG is more pronounced in firms with higher productivity. Why?

• Women are more likely to be concentrated in lower-productivity companies that pay lower wages.
• More productive companies tend to report higher GPG due to lower female representation in larger companies and higher-paying industries (e.g. finance).
• Even if women make it to a senior role, they are paid less than men.
• The within-company ranking of female employees is important. If women are paid more, the gain to being paid more (e.g. holding a leadership role) is smaller. The gain is smaller because men have a wider pool of jobs to apply for. This increases the likelihood for men to be employed in a higher-paying firm as they receive a job offer quicker than women.

3. Cultural and Contextual Factors

Our study also finds that the influence of female directors on reducing gender pay discrepancies is more pronounced in firms where the majority of the board members come from the UK, highlighting the role of local cultural dynamics.

Policy recommendations

Increasing female representation within companies, offering promotion opportunities to senior positions, and increasing female directors are tools to decrease GPG. This is important in male-dominated sectors in which women have fewer opportunities.