Financial performance and compensation alignment of male and female CEOs among Fortune 500 companies

Objective: The objective of the paper is to analyze the alignment of compensation and financial performance of male and female CEO’s in some selected Fortune 500 companies. Using agency theory, this paper empirically estimates the magnitude of financial alignment, as measured by the relationship between total shareholder’s stock return (TSR) and CEO compensation for companies with male and female CEO’s.

Data/methods: This study uses logit regression models and data from Fortune 500 companies. It uses a sample of selected companies with female CEOs and pooled matching data with male CEOs in the same industry. It uses panel data from the Center for Research in Security Prices (CRSP), Value Line and Compustat, using the time period of 2007-2013.

Results/ findings: The research finds no difference in the relative alignment of financial performance and CEO compensation of female versus male CEOs. Additionally, the paper studies the financial performance of companies in the pre and post recessionary periods separately during this period, and then evaluates relative alignment of performance and compensation based on gender of the CEOs. Again gender does not seem to differentiate compensation and performance relationships during various phases of the business cycle. Several papers have been published regarding the impact of male/female CEO appointments on the stock price and ROEs using various methodologies. However, very few previous research papers focus on the CEOs gender on TSR. Also, this paper makes a significant contribution to the existing literature of corporate governance by exploring the intricate relationship between CEO compensation and performance in various business cycles from peak to recession by including data from 2007 to 2014.    

Key words: Corporate governance, Corporate Finance and Governance, Agency theory, Gender.