Associate Professor of Economics Natalya Shelkova presented her most recent research on the Dodd-Frank’s CEO-to-employee pay ratio at the annual meeting of the Southern Economic Association in Fort Lauderdale, Fla.
She and her co-authors investigated the effect of corporate boards’ composition at the largest publicly traded U.S. firms, specifically the presence of women directors, on the size of the pay ratio using data from 2017-2020. They found some interesting and significant results.
First, they showed that tokenism does not help reduce pay inequality. Having one or two women on a board is not enough to make a difference, only when the number of women reaches three, the critical mass, the ratio starts its decline. They also found that the ratio is 15 percent smaller in companies where the CEO serves in a dual role as a chair of the board and the board has at least the critical mass of female directors.
Natalya and the co-authors interpret this result using the stewardship theory of corporate governance: The CEOs in such companies are the “stewards” who could be deliberately seeking to diversify the board, and together they work toward greater intra-firm pay equality.