Gender diversity in compensation committees and CEO pay : evidence from China
Purpose: The purpose of this paper is to address whether gender diversity on compensation committees ensures objective determination of CEOs’ compensation. Design/methodology/approach: The authors use a sample of companies listed in China from 2006 to 2015. The authors use pooled ordinary least square regression as the baseline methodology, and two-stage least square regression and propensity score matching to control for endogeneity. Findings: The authors find evidence that gender-diverse compensation committees limit CEOs’ total cash compensation and strengthen the link between CEO pay and firm performance, but only independent female directors have a significant impact, indicating that the monitoring effect outweighs the executive effect. Moreover, compensation committees with a critical mass of female directors have more impact on CEOs’ total pay and the link between CEO pay and firm performance than do committees with a single female director. Finally, gender-diverse compensation committees are more effective in setting CEOs’ compensation in state-controlled firms, where agency issues are more severe. Practical implications: Female directors can improve firm-level governance by monitoring management actions, such as setting CEOs’ compensation. The study contributes to the debate on gender diversity in the boardroom, finding a positive economic effect. The study sheds light on China’s diversity practices at the director level and provides empirical guidance to China’s regulatory bodies. Originality/value: The authors extend earlier studies by providing the first empirical evidence that gender-diverse compensation committees strengthen the link between CEO pay and firm performance; that independent female directors are more effective in the monitoring role than executive female directors; that compensation committees with a critical mass of female directors are more effective in setting CEOs’ pay than are committees with a single female director; and that the influence of gender-diverse compensation committees on CEOs’ pay varies by type of ownership.
Year of publication: |
2018
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Authors: | Usman, Muhammad ; Zhang, Junrui ; Wang, Fangjun ; Sun, Junqin ; Makki, Muhammad Abdul Majid |
Published in: |
Management Decision. - Emerald, ISSN 0025-1747, ZDB-ID 2023018-7. - Vol. 56.2018, 5 (15.02.), p. 1065-1087
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Publisher: |
Emerald |
Saved in:
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