Does Diversity Pay in the Boardroom?

Abstract

Minority and female (“diverse”) directors earn significantly higher compensation than non-diverse directors. The difference is due to their increased likelihood of being appointed to the boards of larger, more visible firms which tend to pay more. However, within these same firms, diverse directors earn lower compensation than their peers despite having superior qualifications and receiving higher vote totals in director elections. This lower compensation is partially a function of board responsibilities. Although diverse directors are more likely to serve on certain committees (except the compensation committee), they are less likely to serve in key leadership positions associated with greater pay. Moreover, they earn less income beyond the formulaic components of director compensation. Female and minority representation on the director compensation committee and the existence of a board diversity policy attenuates this effect.

Keywords: Director compensation, Boards of directors, Diversity, Gender, Women, Minorities

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