Gender diversity on corporate boards remains a hot topic in the business world, with a growing body of research highlighting its positive impact on business performance – and an increasing number of organizations looking to incorporate a diversity of views, experiences, and backgrounds. However, despite this, women remain underrepresented on boards of directors. Not only that, but gender pay disparities persist among these directors, particularly among non-executive directors (NEDs). Intuition tells us that one way to break up these disparities could be to increase the presence of women so they can activate more fairness into the board playfields and overall decision-making.
The issue of gender disparity – including the gender pay gap, biases in selection processes, and gendered expectations – has received significant attention from both academia and the media. Yet, the underlying causes of this disparity remain elusive and this means that the strategies needed to tackle the gap are still uncertain. Furthermore, the issue has been explored even less within the context of corporate boardrooms, where interpersonal relationships and social connections are key elements in the selection of board members.
Only recently have women begun to join corporate boards as non-executive directors. The primary responsibility of NEDs on boards is to provide impartial judgment on matters related to strategy, performance, resource allocation, key appointments, and standards of conduct. NEDs are not involved in the day-to-day management and operations of the company, in contrast to the role of executive directors. The two complementary roles are essential to the boardroom and to the overall functioning of the company. However, given that NEDs are valued for their external perspective and experience, one might consider this boardroom role to be the more prestigious.
It is typical for NEDs, acting as independent advisors and supervisors of the executive directors, to have their compensation determined by either the board itself or the company’s shareholders. Their remuneration is usually based on a fixed fee, with additional amounts added based on specific duties, such as participation in various board committees.
NEDs rely predominantly on their social, economic, and political networks to secure board appointments and the assumption is that they are appointed on equitable terms. However, when it comes to compensation, it’s important to note that individual characteristics – such as gender – also come into play. In the UK, women accounted for 45.5 percent of NEDs at FTSE-100 companies in 2022, up from 33 percent in 2017 and 15 percent in 2007. This growth also shows slight progress in terms of reducing gender pay disparities among NEDs.
Women must be transitioned from the realm of tokens.
Together with our coauthor Valentina Tarkovska of Technological University Dublin, we investigated the potential impact of increasing the representation of women on boards as a way to address gender pay disparities among NEDs within the boards they serve. We looked at NEDs’ remuneration spanning 16 years (1999-2015) from a sample of 365 companies listed on the London Stock Exchange.
Our research yielded a significant and actionable result: There must be a critical mass of 33% female representation on a corporate board in order to mitigate the gender pay disparity among NEDs. On top of that, we found that the presence of women on influential committees reduces the gender pay disparity among NEDs even further. Therefore, to effectively address and rectify the pay inequities within boardrooms, organizations must either ensure a significant representation of women to prevent them from being marginalized as a minority on the board or (better yet: and) strategically position women in influential and visible roles. Women must be transitioned from the realm of tokens.
Despite the rich literature on gender-based wage disparities among corporate executives, there has been little research on these inequities among board members. And while a few studies have analyzed how the integration of women on boards affects pay differences among directors, there has been little academic attention put to how having more women on boards impacts the compensation among NEDs – a role valued for experience, perspective, and also networks – serving on the same board.
Fairness and equity should be enough of a reason for gender pay equality. Nevertheless, there are other convincing reasons to reduce the pay disparity among board members. For example, a gender pay gap among executive and non-executive directors alike has been shown to have a negative effect on firms’ performance. Increasing the number of women on boards has the potential to reduce wage inequality, not only at the C-suite level but also among executives. This, in turn, can stimulate better performance at the executive level.
Furthermore, the presence of women directors can decrease conflict and improve the quality of board processes. According to research from Margarethe Wiersema of the Merage School of Business U.C. Irvine and Mary Louis Mors of Copenhagen Business School, women tend to act in ways contrary to existing board norms. That is, women directors come to board meetings highly prepared, ask questions, and are willing to acknowledge when they do not know something – thus making a positive impact on the dialogue and the processes at the table. Unfortunately, and despite the positive implications of the impact that women make when in such senior positions as directors of the board, research from Alison Cook and her colleagues at Utah State University has found that even after their board presence is increased, women do not reach senior positions proportionately to men on the same boards. It seems the corporate glass ceiling is still in place.
Incorporating women on boards can make strong inroads into reducing gender pay disparities among NEDs, particularly when these women are given visible and relevant positions on the board. Indeed, the inclusion of women on corporate boards is a critical step towards addressing gender pay disparity at the highest levels of business leadership. This practice not only promotes gender diversity, but it also brings a range of perspectives to the table that can lead to more equitable and effective decision-making. Research has consistently shown that companies with gender-diverse boards are more likely to have policies that reduce gender pay gaps. This is partly because female board members are more likely to prioritize fair pay and actively advocate for policies that promote gender equality throughout the organization.
Furthermore, the mere presence of women in these high-profile roles sets a powerful precedent, challenging the traditional and entrenched norms and biases that often perpetuate the gender pay gap. It also demonstrates to aspiring female leaders that gender should not be a barrier to reaching the top echelons of corporate leadership.
In essence, the inclusion of women on corporate boards extends beyond fairness or compliance with diversity mandates. It is a strategic decision with far-reaching ramifications for an organization’s culture and financial success. Proactively addressing gender disparities at the board level empowers companies to foster a workplace environment that is inclusive and equitable, prerequisites for sustainable business growth in the modern world.
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