A recent paper examines how female and minority directors are valued by shareholders and boards by studying the compensation of individual diverse directors and their appointment to leadership positions. The paper finds that “highly visible” companies are more likely to have diverse directors and those directors represent a greater proportion of the board at those firms. The authors also show that shareholders appear to value diversity – as measured by the fact that diverse directors are associated with higher proxy vote totals than their colleagues. While “highly visible” corporations tend to have higher average compensation than other companies, diverse directors at these firms receive less compensation than their peers, even after controlling for education and experience.
The paper finds that the difference in pay is related primarily to the fact that diverse candidates are less likely to have positions of leadership (including board chair or lead director), less likely to participate in special assignments, and less likely to serve on a firm’s compensation committee. According to the paper, diverse directors are more likely to be placed on certain committees, including the audit, nominating, and governance committees; however, they are less likely to play a role on the compensation committee. In addition, while women sometimes serve as committee chairs, other diverse candidates are less likely to serve in any leadership capacity. The authors find that these differences are not related to qualifications or “monitoring quality” of the diverse directors. The paper points out that much of the diversity research focuses on board compensation, but that “evidence of inequality” persists “even after these directors have been elected to the board.”