Does Diversity Pay in the Boardroom?

Abstract

This paper examines diverse (female and minority) director appointments to board leadership positions. While diverse representation on S&P 1,500 boards has doubled over the past twenty years and diverse directors possess at least the same professional qualifications as their peers, many board leadership positions allude them. Controlling for qualifications and experience, we find that diverse directors are significantly less likely to hold the titles of chairman of the board, lead director, audit, or compensation committee chair than their non-diverse counterparts. Because diverse directors do not frequently serve in these compensated leadership roles, they earn lower pay. Our tests show that diverse directors perform their duties as well as other directors: diverse directors receive higher shareholder support during director elections and we find no evidence of lower monitoring quality for firms with diverse directors in leadership roles. The evidence suggests that failing to obtain predicted leadership roles on the board results in attrition for diverse directors.

Keywords: director compensation, boards of directors, diversity, gender, women, minorities

JEL Classification: J15, J16, J31, J71, G34, M14