Gender Pay Gap in Top Jobs

What is the ratio of women’s to men’s earnings on average in Canada?

What is the ratio of women’s to men’s earnings on average in Canada?

• Between 1984 -2008, the gender wage gap narrowed by 9.6 percentage points or in relative terms, by 13%

Source: Marie Drolet, 2010.

Does the gap vary across the distribution?

• Upper end: women earn 25% less than men == Glass Ceiling

• Lower end: women earn 18% less than men == Sticky Floors

Source: Drolet, 2001.

Among MBAs, the gender pay gap grows with experience

Source: Bertrand, Goldin and Katz, 2010.

Among MBAs, the gender pay gap grows with experience

Source: Bertrand, Goldin and Katz, 2010.

Executive gap varies by industry

Dominic Barton: Key findings from our latest research on women executives

• Who is Dominic Barton?• Dominic Barton is the global managing director of McKinsey. He is

based in London and leads the firm’s focus on the future of capitalism and the role business leadership can play in creating long-term social and economic value.

• Dominic Barton also wrote the following Honours Thesis at UBC

• Look on YouTube for “McKinsey –Addressing Unconscious Bias”

217. 1984 An Examination of the Vulnerability of the International Financial System to Crisis Dominic Barton

Executive gender gap remains, Catalyst report saysCanadian companies making slow progress in promoting womenCBC News Posted: Mar 3, 2011 11:46 AM ET

Growth in the number of women who advance to the executive ranks at Canada's largest companies has slowed to a crawl in the past two years, a major study has found. ……The percentage of women holding senior officer positions increased less than one percentage point over two years, from 16.9 per cent in 2008 to 17.7 per cent in 2010. Further, female senior officers held 6.2 per cent of top earner positions in 2010 — up less than one percentage point from 5.6 per cent in 2008.

In both years, a full 30 per cent of the largest companies in Canada did not have a single woman in their executive ranks.

Women hold 8.5 per cent of the highest-paid positions in Canada’s top 100 listed companies, according a report by global executive search firm Rosenzweig & Company.That’s almost double the 4.6 per cent recorded in 2006, the first year Rosenzweigstudied women in executive positions, and up from 7.4 per cent in 2011. But in real terms, it represents 45 women in top jobs such as chief executive, chief financial officer or vice-president of a company, including eight female CEOs.

Over the past 20 years, top incomes in the US have soared

•

25%

30%

35%

40%

45%

50%19

1719

2219

2719

3219

3719

4219

4719

5219

5719

6219

6719

7219

7719

8219

8719

9219

9720

0220

0720

12

Top

10%

Inco

me

Shar

e

Top 10% Pre-tax Income Share in the US, 1917-2013

Source: Piketty and Saez, 2003 updated to 2013. Series based on pre-tax cash market income including realized capital gains and excluding government transfers.

Mostly among the top 1%

0%

5%

10%

15%

20%

25%19

1319

1819

2319

2819

3319

3819

4319

4819

5319

5819

6319

6819

7319

7819

8319

8819

9319

9820

0320

0820

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ach

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Decomposing Top 10% into 3 Groups, 1913-2013

Top 1% (incomes above $392,000 in 2013)Top 5-1% (incomes between $165,500 and $392,000)Top 10-5% (incomes between $116,500 and $165,500)

Source: Piketty and Saez, 2003 updated to 2013. Series based on pre-tax cash market income including

Average Income Real Growth

Top 1% Incomes Real Growth

Bottom 99% Incomes Real Growth

growth (or loss)

captured by top 1%(1) (2) (3) (4) p

1993-2013 15.1% 62.4% 7.3% 59%Clinton Expansion

1993-2000 31.5% 98.7% 20.3% 45%2001 Recession

2000-2002 -11.7% -30.8% -6.5% 57%Bush Expansion

2002-2007 16.1% 61.8% 6.8% 65%Great Recession

2007-2009 -17.4% -36.3% -11.6% 49%Recovery

2009-2012 6.9% 34.7% 0.8% 91%Top tax increase

2012-2013 -3.2% -14.9% 0.2% 106%

Computations based on family market income including realized capital gains (before individual taxes).Incomes exclude government transfers (such as unemployment insurance and social security) and non-taxable fringe benefits.Incomes are deflated using the Consumer Price Index.Column (4) reports the fraction of total real family income growth (or loss) captured by the top 1%.For example, from 2002 to 2007, average real family incomes grew by 16.1% but 65% of that growthaccrued to the top 1% while only 35% of that growth accrued to the bottom 99% of US families.Source: Piketty and Saez (2003), series updated to 2013.

Table 1. Real Income Growth by Groups

Increases in top incomes in other countries too!

Source: Lemieux and Riddell (2014)

But not all countries!

Governance and Social Norms

• Under very tax rates (over 50%), boards may find that higher CEO compensation is not the most effective use of firm revenues

• Perhaps stronger governance could bring discipline to increases in top income, and have more compensation send lower down the hierarchy

• The average worker would likely benefit more than a higher salary than a meager tax relief

• Different countries/firms have different views on the appropriate CEO/average worker salary ratio from 67 to 1 in Japan, to 206 to 1 in Canada, to … in the United States

Increases in salaries are an important part of the picture

0%

2%

4%

6%

8%

10%

12%

1916

1921

1926

1931

1936

1941

1946

1951

1956

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

2011

Capital Gains

Capital Income

Business Income

Salaries

Source: Piketty and Saez, 2003 updated to 2013. Series based on pre-tax cash market income including or excluding realized capital gains, and always excluding government

US Top 0.1% Pre-Tax Income Share and Composition

Source: http://go.bloomberg.com/multimedia/ceo-pay-ratio/

Quotas for corporate boards advance?

2014 Catalyst Census: Women Board Directors

2014 Catalyst Census: Women Board Directors

OSC proposes rules for women on boards, but stops short of quotasBarbara Shecter Financial Post | January 16, 2014 10:19 AM ET

• Companies listed on the Toronto Stock Exchange will have to disclose how many women they have on their boards and in their executive ranks as well as set targets for the future, the Ontario Securities Commission said Thursday.

• But the proposals fall short of quotas, which some groups argued is the only way to ensure Canadian companies put more women on their boards.

• Under the proposals, which are subject to a 90-day comment period before being finalized, all companies listed on the TSX would have to disclose each year the number of women on their board and in executive positions, and their targets regarding the representation of women.

• They would also have to explain their corporate policies related to the issue, and disclose the board’s or nominating committee’s consideration of the representation of women in identifying and selecting directors.

• Our proposed amendments are intended to encourage more effective boards and better corporate decision making, which will benefit investors and the capital markets,” said Howard Wetston, chair of the OSC.

• “This is about helping TSX-listed issuers tap into a pool of talented and capable resources currently under-represented on today’s boards and senior management.”

OSC rebukes firms for lack of action on gender-diversity rules Janet McFarland Wednesday, Jun. 10, 2015 4:23PM EDT

• Many companies have shown bare “technical compliance” with new gender-diversity reporting rules introduced this year and it is “simply not good enough,” Ontario Securities Commission chair Howard Wetston says.

• Mr. Wetston said on Wednesday that the OSC has begun reviewing proxy circulars filed this year to see how companies are responding to the rules requiring them to disclose details about their policies to bolster women in senior roles, or else explain why they do not have policies in place.

Do quotas for corporate boards help women advance?

Differences-in-DifferencesStep 1: Simple Difference• Outcome (example): LFP (female labor

force participation)• Two groups: Treatment group (T) which

faces a change and control group (C) which does not

• Simple Difference estimate: D = LFPT - LFPC (P2 – P1 )

• captures treatment effect, if in the absence of treatment, LFP equal across 2 groups

• Note: this assumption always holds when T and C status is randomly assigned. To test for this assumption, we can compare LFP before the treatment:

• 𝐷𝐷𝐵𝐵 = 𝐿𝐿𝐿𝐿𝐿𝐿𝐵𝐵𝑇𝑇 − 𝐿𝐿𝐿𝐿𝐿𝐿𝐵𝐵𝑐𝑐 (P1 – S1 )Before reform

After reform

Control

Treated

Differences-in-DifferencesStep 2: Difference-in-Difference (DD)• If 𝐷𝐷𝐵𝐵 ≠ 0, we can estimate DD:• 𝐷𝐷𝐷𝐷 = 𝐷𝐷𝐴𝐴 − 𝐷𝐷𝐵𝐵 =

[𝐿𝐿𝐿𝐿𝐿𝐿𝐴𝐴𝑇𝑇 − 𝐿𝐿𝐿𝐿𝐿𝐿𝐴𝐴𝑐𝑐] − [𝐿𝐿𝐿𝐿𝐿𝐿𝐵𝐵𝑇𝑇 − 𝐿𝐿𝐿𝐿𝐿𝐿𝐵𝐵𝑐𝑐]• where A = after reform, B = before

reformDD= (P1 – S1 ) – (P2 – S2 )

• Under the parallel trend assumption • (P1 – S1 ) = (Q – S2 )• the treatment effect is• DD=(P2–Q)

Before reform

After reform

Control

Treated

Differences-in-Differences

• DD is unbiased if the parallel trendassumption holds: absent the treatment, the difference across T and C would have stayed the same before and after

Differences-in-Differences

• DD can be estimated by OLS to control for additional covariates• 𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖𝑖𝑖 = 𝛽𝛽0After + 𝛽𝛽1Treat+γAfter∗Treat+𝛽𝛽𝑥𝑥𝑋𝑋𝑖𝑖𝑖𝑖+𝜀𝜀𝑖𝑖𝑖𝑖• It is easy to show that �γ = �𝐷𝐷𝐷𝐷.• The assumption of parallel trends is reflected in the model by

the fact that 𝛽𝛽0 is the same for the treatment and control group• DD most convincing when groups are very similar to start with

[closer to randomized experiment]

Differences-in-Differences

• Should always test DD using data from more periods and plot the two time series to check parallel trend assumption [e.g. Imbens et al.]

• Use alternative control groups [not as convincing as potential control groups are many]

• In principle, can create a DDD as the difference between actual DD and DDPlacebo (DD between 2 control groups)

Event Study – Abnormal Returns

• Event studies are extremely common in finance research projects!• They represent an attempt to gauge the effect of an identifiable event on a

financial variable, usually stock returns

Event Study–Abnormal Returns• Abnormal returns, denoted ARit are calculated by subtracting an

expected return from the actual return: ARit = Rit − E(Rit)• The expected returns can be calculated in numerous ways; the market

model is a common way to construct expected returns• It uses a regression of the return to stock i on a constant and the return

to the market portfolio:Rit = αi + βiRmt + uit

• The abnormal returns are computed as • �𝑢𝑢𝑖𝑖𝑖𝑖 = Rit−[ �𝛼𝛼𝑖𝑖 + �𝛽𝛽𝑖𝑖𝑅𝑅𝑚𝑚𝑖𝑖] or 𝐴𝐴𝑅𝑅𝑖𝑖𝑖𝑖 = Rit −𝐸𝐸[𝑅𝑅𝑖𝑖𝑖𝑖 |𝑋𝑋𝑖𝑖]• where �𝑢𝑢𝑖𝑖 , Rit are the abnormal, actual returns respectively and 𝐸𝐸[𝑅𝑅𝑖𝑖𝑖𝑖|𝑋𝑋𝑖𝑖]

are the normal returns, conditioning on other X’s• The cumulative average return (CAR) between T1 and T2 are calculated

by averaging across firms first and then cumulating over time:

• where

Event Study – Abnormal Returns

• In DD context, one further approach is to set up a ‘control portfolio’ of firms that have characteristics as close as possible to those of the event firm – for example, matching on firm size, beta, industry, book-to-market ratio, etc. – and then using the returns on this portfolio as the expected returns