The importance of a critical mass of women on boards to reduce the gender pay disparity among non-executive directors

Abstract

Purpose The interest in promoting diversity in corporate governance is increasing gender equality on boards. Even so, previous research shows that women are underrepresented on boards of directors. This study aims to explore how an increasing presence of women on boards reduces gender pay disparity among nonexecutive directors (NEDs). Design/methodology/approach This study explores how an increasing presence of women on boards reduces gender pay disparity among NEDs. Findings The results indicate that for boards to reduce the gender pay disparity among NEDs, women need to reach a critical mass of 33% of board members. In addition, this study finds that women’s presence on influential committees further reduces the gender pay disparity among NEDs. Research limitations/implications The study uses critical mass and social identity theories to explain the impact of women directors on NEDs’ remuneration in a sample of 365 companies listed on the London Stock Exchange over 16 years (1999–2015). The findings indicate the importance of reducing gender pay disparity as a tool to promote gender equality on boards. Practical implications This study provides evidence on the importance of corporations including gender diversity on board committees to reduce gender pay disparities at the board level. Originality/value In addition, this study finds that women’s presence on influential committees further reduces gender pay disparity among NEDs.

Nomination and remuneration committee: a review of literature

“…In contrast, women in nomination committees significantly negatively affect say-on-pay dissent voting. This is supported by research by Tarkovska et al (2023) who found that the presence of women on committees would further reduce the wage gap. Singhania et al (2022) found the presence of women on the nomination and remuneration committee significantly increased Tobin's q but decreased ROA.…”

“…In contrast, women in nomination committees significantly negatively affect say-on-pay dissent voting. This is supported by research by Tarkovska et al. (2023) who found that the presence of women on committees would further reduce the wage gap.…”

Do corporate governance and managerial power induce abnormal CEO compensation contracts? an analysis of the Brazilian market

“…More recently, studies such as Alves (2023) and Ssekiboobo et al (2023) demonstrated that gender diversity on the board is useful in reducing managerial opportunism. Furthermore, Tarkovska et al (2023) results indicate that the presence of women on the board may influence salary justice, reducing inequalities. Given this, it's possibe to recognize the benefits of gender diversity on boards and it can be considered that the existence of more diverse boards reduces managerial opportunism, resulting in a abnormal compensation reduction.…”

Determinants of Remuneration Committee Chairman’s Pay: Evidence from the UK

“…The research on gender pay issues among non-executive remuneration within the same board has been given little academic attention and mainly focused on board levels, as a percentage of female board members. Only a few studies have considered the influence of gender at the level of individual non-executive directors and documented the gender pay gap in general (Hahn and Lasfer 2011;Tarkovska et al 2023;Marchetti and Stefanelli 2009;Bugeja et al 2014;Goh and Gupta 2016;Fedaseyeu et al 2018;Belcredi and Bozzi 2019). However, the specific role that female non-executive directors play on the board is not taken into account in these studies.…”