Male and female executive pay: Shocking but not surprising

Wednesday, October 1, 2008

Fortune’s statistics on the top 25 best-compensated male executives' paychecks compared to the top 25 best-paid women’s in 2007 paints an anachronistic picture: think 1950's-style workplace with female secretaries wearing corsets and male executives drinking bourbon for lunch; a scene straight out of Mad Men. No really, it is rather shocking.

Here are some highlights:

The top male earns $350.7 million and the top female earns $38.6 million. That’s a $312.1 million differential!

RW: Okay, so the top male is Steve Schwarzman, Chairman and CEO of Blackstone Group and the top female is Sharilyn Gasaway, EVP and CFO of Alltel. Some may argue that the comparison is misleading because their titles are different. Let’s compare Hamilton James (number 6), President and COO of Blackstone Group with Sharilyn Gasaway, EVP and CFO of Alltel because COO and CFO are roughly comparable.

The sixth best-compensated male earns $98.7 million and the top-paid female earns $38.6 million. That’s a $60.1 million differential!

I am female and assure you that I do not run around fighting for women’s rights or anything like that, but I will appeal to economics when I note three ostensible differences between male execs and female execs:

1. The highest paid male exec is a CEO, while the highest paid female is a CFO.
2. The differential between male and female compensations with comparable titles (COO and CFO) is 1.6 times that of the lower paid female.
3. The ratio of the highest paid male to the highest paid female is 9.

So here is my question: Do you think that the highest paid male executive offers nine times more value to his firm than does the highest paid female executive? I tend to think not.

It suggests that there is still discrimination in the workplace, as such wide salary differentials are unlikely to be explained by stark discrepancies between the male executive labor supply and the female executive labor supply (except, obviously, their reserve wages).

Note: the article specifically calls the male list best-compensated and the female list best-paid, but Fortune fails to mention why.

Rebecca Wilder


Janie October 1, 2008 at 6:00 PM  

Sad but true. Only a sea change on the part of males will make anything happen. Interestingly, people in the services (Army, Navy, etc.) are paid base pay according to rank and years of service.

Anonymous October 2, 2008 at 3:18 AM  

Shouldn't one compare executives from at least the same industry??

Ryan Lackey October 2, 2008 at 3:54 AM  

You seem to be confused about million vs. billion throughout this article.

There is a huge difference between industries and even firms, and obviously non-cash compensation dominates here, so figuring out the value in a turbulent market is a bit tricky.

If there is an industry where men and women do equivalent jobs equally well and are paid at a 9x differential, please let me know so I can hire a bunch of the most qualified of the underpaid sex at only a 4.5x differential and take over the industry!

James October 2, 2008 at 6:01 AM  

I think your reasoning is flawed. By comparing the top 25, rather than the top X%, you are skewing the data. Women executives' salaries should be much closer to average simply because there are fewer women executives.

For example, imagine a world where there are 50 male executives and 25 female executives. If you compare the top 25 of each group, you will be comparing the top half of men to the average of women.

You could certainly ask why there are far more male executives than female ones. However, here I think self-selection plays the biggest role. It is a fact of life that women tend to choose different occupations than men. As a female economist, I bet you've noticed that there are far more men in your profession than women. (If not, the Nobel selection committee must be sexist.) I work as a software developer. There are far more men in my profession than women. That was true even in college computer science classes, where employers hadn't had an opportunity to discriminate yet.

I don't think the top male executive is 9 times more valuable than the top female executive, but I do think the fact that male executives significantly outnumber female executives gives them a greater probability of benefiting from the long tail effect.

I also think CEOs get paid too much because corporate oversight doesn't work the way it is intended. Theoretically, the CEO is the boss of the company, the board of directors is the boss of the CEO, and the shareholders are the bosses of the board of directors. In reality, the CEO is usually the chairman of the board, so most board members see him as their leader as well. Meanwhile, shareholders have little say in the selection of the board of directors; they basically just rubber stamp whoever is appointed. This means that the CEO effectively has no boss, and the people who decide his salary see him as their leader.

Richard October 2, 2008 at 6:37 AM  

In answer to RW's question, No! I do not think a male executive offers 9 times more value than a female executive. Nor do I think these executives offer 100 to 1000 times the value of the average employee. Unfortunately, compensation is not based on value. We can't in general say any of these people "should" be paid as much or more than they are paid. The alpha person (usually male typically "commands" more due to his (or her) influence, not value. I find executive pay level in general to be grossly excessive, including Ms Gasaway's.

Anonymous October 2, 2008 at 11:43 AM  

It's interesting to see men like James and Ryan excuse this situation as a statistical anomaly. Although it may be an exaggerated presentation of the income ratio, one can hardly deny that there is indeed a vast discrepancy in male and female pay that is not always attributable to factors of choice or value. To suggest that gender has nothing to do with compensation is to ignore piles of data showing that with all other factors equal, women are still paid less than men. Part of the "sea change" that needs to happen is for the James and Ryans of the world to get over their defensive justification of this inequality and check their own attitudes.

Rebecca Wilder October 2, 2008 at 1:04 PM  

Hi you all,

James: “For example, imagine a world where there are 50 male executives and 25 female executives. If you compare the top 25 of each group, you will be comparing the top half of men to the average of women.”

RW: I do not know the number of male/female execs, but anecdotal evidence suggests that your point is correct. Touche, there are inconsistencies regarding the distributions of each gender.

Ryan: “You seem to be confused about million vs. billion throughout this article.”

RW: Not confused, just a typo. I was looking at trade data (which is measured in billions) contemporaneously. Thanks, though, for the note – $ billion and $million are clearly two entirely different leagues. I fixed the stats.

Ryan: “There is a huge difference between industries and even firms, and obviously non-cash compensation dominates here, so figuring out the value in a turbulent market is a bit tricky.”

RW: Certainly, there are industry differences, but I suspect that cannot explain the differential. It should be noted that the first woman to be listed as an exec in finance (which is the industry where the top two males work) is number 10: Sharon Fay, EVP at AllianceBernstein Holding (AB); 2007 Total compensation: $12.4 million. Firms is slightly more obscure, but one would think that anybody working at The Blackstone Group – no matter what the gender – would earn a higher salary than someone working at a less reputable asset management firm.

Fortune indicates that the source data – total compensation – is comparable across both genders, and so non-cash compensations would not make a difference since the data does not incorporate it. According to Fortune (and for both the top male and top femal execs): “Source: Equilar Inc.: Total compensation includes annualized base salary, discretionary and performance-based bonus payouts, the grant-date fair value of new stock and option awards and other compensation. If relevant, other compensation includes severance payments. Equilar Inc., an executive compensation research firm in Redwood Shores, Calif., prepared the chart by looking at companies with more than $1 billion in revenues that filed proxies by Aug. 15.”

RW: In the end, it seems irrational for the pay scales – no matter what industry, firm, distribution, or title – to be so vastly different. I work as an Economist in the financial industry; I am used to being in the boys club. Statistics like this, however, do highlight some obvious inefficiencies in labor markets across genders.

I agree with, Janie, who sent me this email: “Basically, all the technicalities in the world still don't explain the fundamental difference in pay.”

Thanks for reading, R

James October 2, 2008 at 6:43 PM  

It would be interesting to look at data that eliminates the possibility of employer gender discrimination by studying the incomes of founder-CEOs. To get a large enough sample size, you would probably have to look at many small and medium-sized companies.

Again, I think self-selection would create a sample with far more male founder-CEOs than female ones. To avoid the long tail effect, you should look at median values rather than mean values.

One could argue that people who have had high-paying careers are better able to found their own companies. Alternatively, one could argue that people who are underpaid would have a greater incentive to found their own companies. To avoid these biases, it may be preferable to look at founder-CEOs who started their company at a young age, before previous-income effects could distort the data.

Even then, I suspect you will find that 1) there are far more men than women in the sample, and 2) the men earn more. If that is the case, then you would have to conclude that something other than employer sex-discrimination is causing the income differences.

Anonymous October 2, 2008 at 6:44 PM  

Wow, this is so incredibly skewed towards the female way of thinking. Women, if it really was that simple, any enterprising company would simply hire all women, and get "equal work for less pay" and put the competition out of business.

Bottom line: You get a pass for just showing up. To use street jargon, if a man dupes me out of $10,000 bucks, he might end up with a black eye. If a woman dupes me out of $10,000, the courts will protect her and she'll probably have a lawyer demanding more and I can do know more than lift a pinkie finger in her direction. Men engage in competition with other men; however, in dealing with women, men 'defer' to the softness of the fairer sex. You got it easy and you don't even know it. Try eavesdropping on any conversation between men. It is all non-stop one-upmanship, with each guy trying to show how superior he is over the other guy. Even if the conversation is about where to have lunch. With women, men will give in, show an easier side in conversations... because you're a woman. Is that equal treatment? No, it is preferential treatment and you get it every day and all the time without being aware of it. It is the way the world works.

Men created the business / industrial complex over thousands of years, in brutal competition where one gets by with cunning observation, strategic manuevering and deft assertive action. This place of work was developed, and is symbiotic, of the working male mind. Women, as you may have noticed, do not think like men. In fact, studies have recently proven that women's brains are wired differently. So, are we supposed to believe that you will navigate the men's working world as effective as a man? Please. I know if I give a task to a man that I can rely on his method of handling the task due to his brain being that of a man, and his thinking like a man. I am a man, and I'd like to be able to rely on what I know will work. Women, however, tend towards accomplishment using different thought processes that are unreliable, and have tendencies towards the emotional. Women tend to want to take time off or want flex time, and do not commit to longer-term careers and therefore may not be worth the extra investment.

All that said, and I've only gotten started, if you compare equal experience and equal skill sets in similar jobs, you'll find that there if very little difference in pay. Using the 'title' as the comparative elemente is pathetic. Oh wait, I shouldn't say that, you're a lady, and need to be treated differently.

Maybe I should put you in touch with the female real estate broker I know who makes sure she wears a bright red dress with a low-cut blouse on 'closing days' (or any female RE broker or agent; open your local sunday RE section to see what I mean). This way of nagivating the work world is used all the time, unfairly, to the women's benefit. I know I should not bring up how women use sexuality all the time to get ahead - many times when they do not deserve it - since that might piss-off you and a lot of other women. And that might mean women as a group might somehow threaten to collectively abstain from having sex with us. It's the only thing you got, that and a judge in a courtroom.

You beg to differ? You want fairness? You already got it, so knock it off, and get over yourself. As I said earlier, if you really were equal or better than men, smart men would hire all women and win the game. Men have been at this for thousands of years and just because you just showed up doesn't mean we're changing the game and giving you a handout. So stop using completely skewed facts and slovenly manipulation of the court system to extract pay you have no right to. You DO get equal pay for equal work, as defined by skill set, experience and other factors, not 'title'. I guess you could go out and create your own business / industrial complex for yourselves, but that would mean you'd have to work late, huh?

And I guess I could go cherry-pick some stats and prove that its actually women that make more than men. Those stats are out there, but I have better things to do with my time than whining.

When we stop having to read this garbage it will not be soon enough.

Janie October 2, 2008 at 10:30 PM  

Spoken like a true male, anonymous.

brian holt October 3, 2008 at 12:06 AM  

no, not like a male; a coward.

Anonymous January 10, 2009 at 8:06 AM  

Funny, anonymous above. I find men to be a lot less trustworthy, more prone to cheating, more prone to engage in white collar crime that has sent our economy spiraling downwards, not to mention being more prone to be irrational and emotional.

I have worked in the boy's club and all the social conversations I heard besides sports and the usual manhandling et al are their problems with their wifes and girlfriends, etc., and blaming women for being irrational and emotional while forming a buddy "support group" for those going through rough periods in their personal lives such as divorce, etc.

Sorry to break it to you but I've worked long enough in the trading arena and investment banking to know that's exactly what's going on. Men who need nannies and babysitters to handle all the "support" functions which will be taken care of by women while they can "manhandle" their way to the top, while showing that because they can indeed pee further, well, they've got to be superior in every way. End of discussion.

This is a social phenomenon and starts at a very early age. Colleges have been found discriminatory as well, including evidence of (male) professors driving away women from math and sciences. I happen to be a very analytically oriented person with all the physics background, top scores et al, and even when I come up with quantitative models or solutions to difficult problems I have difficulty convincing the "guys" that I'm good at the job.

Just think Harvard's former president Larry Summers who suggested that women are not good at science while showing evidence of his OWN daughter to prove his point. Who needs a discriminatory employer while college professors are out actively alienating women from the sciences?

The employer does not believe they are discriminating against a woman because the lack of a "macho" showing is believed to be a weakness in the business world. And nobody is going to hire a woman of equal or greater skill when you can hire a man that looks better and more important for the position.

Perception is everything, and perception is made up of biases, prejudices, and stereotypes.

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