Hodgson: how does the pay for female CEOs stack up against their male counterparts?

Twenty-three S&P 500 companies are led by women.

What do PepsiCo, Xerox, Du Pont and Hewlett-Packard all have in common? They’re all run by female CEOs. Five years ago, in 2009, 13 S&P 500 companies were led by females, now there are 23. It’s hardly progress, but at least it’s an improvement. But what about their pay?
Back in 2009, female CEOs in the S&P 500 earned about half what their male counterparts earned on average. Now, however, at least among the largest companies in the US, women have not only caught up, in most instances they’ve overtaken men.
There have been some pretty high profile appointments of women CEOs in the last 18 months – Marissa Mayer at Yahoo!, Mary Barra at GM – with mixed success as it turns out – but Phebe Novakovic at General Dynamics and Marillyn Hewson at Lockheed Martin? I know defence companies rarely court publicity, but these appointments – both very recent – were a complete surprise to me. And Xerox is on its second female CEO in a row.
Anne Mulcahy was CEO there for eight years until July 2009, when Ursula Burns succeeded her. Carol Bartz was CEO at Yahoo! one CEO ago, or was it two…. At Avon Products, Andrea Jung’s 13-year tenure was succeeded by Sherilyn McCoy. And Margaret (Meg) Whitman left the top job at eBay for a failed bid at political office, to return as the CEO of HP.
But to return to the claim about pay I made in the first paragraph. In his state of the union speech earlier this year, President Barack Obama said: “You know, today, women make up about half our workforce, but they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment. Women deserve equal pay for equal work.” Sitting in the audience, indeed an honoured guest, was General Motors’ CEO Mary Barra. Soon afterwards, GM announced her pay package.
Ever searching for a stick with which to beat the President, Fox News published a story claiming that Barra was paid less than half her male predecessor, calling it the “White House’s misstep on GM’s pay gap”. Except that GM had not disclosed Barra’s full package, just the annual cash amounts, without the equity awards, which amounted to around $4.4 million. Adding in the equity awards, Barra’s headline pay is estimated by GM to be $14.4 million, more than her predecessor Dan Ackerson’s $11.1 million in 2012.While there were some limitations on Ackerson’s pay because the US government was heavily invested in the company and had imposed restrictions, the restrictions were not overly harsh. But this story of female CEOs being appointed with remuneration in their first year at the same level or higher than their male predecessor is not confined to GM, but repeated across the economy. Of the 12 S&P 500 female CEO appointed within the last few years, eight were appointed at pay levels almost the same or higher than their male predecessors.
Examples include Lynn Good, CEO of Duke Energy. James Rogers, former CEO of Duke Energy, did not receive any cash bonus or salary, being remunerated almost entirely in stock. This paid off, given he received $40.5 million in stock and option profits in 2013. But this aside, Lynn Good’s headline compensation – based on an annualized estimate (she was appointed mid-year) is much the same as Rogers’, though with considerably less potential upside.
It is the same at media company Gannett. Even though she eschewed a salary increase on her promotion to CEO, and voluntarily reduced her existing salary by $50,000, Gracia Martore, who sat on the company’s remuneration committee until her appointment as CEO, still earned more in her first full year as CEO compared to the annualized headline pay for predecessor Craig Dubow.
At General Dynamics, new CEO Phebe Novakovic earned $19 million in her first year as CEO compared to $18 million earned by former CEO Jay Johnson. Including all the “leadership transition awards” – promotion pay in plain English – healthcare company HCP’s CEO Lauralee Martin was paid $1.3 million more than her predecessor, at around $13 million. Beth Mooney, CEO of bank KeyCorp earned just shy of the $7 million paid to her predecessor, but if you exclude the $3.3 million of pension increase he earned (that compares to a $5K pension increase for Mooney), she earned substantially more. Similarly, at the second defence company in the list, Lockheed Martin, the new female CEO Marillyn Hewson was paid $25 million compared to $27.5 million for the former male CEO. Not quite as much, but at these levels of pay, a difference of a couple of million dollars is barely significant. Even so, Hewson was only the second highest paid female CEO in the sample.
At Sempra Energy, Donald Felsinger stayed on as executive chairman initially; even so, Debra Reed out-earned him in her first full year as CEO.
But new female CEOs did not always out-earn their male predecessors. In a similar situation to Sempra Energy, but with a very different result, at pharmaceutical company Mylan, former CEO Robert Coury remained as executive chairman. The result was that Heather Bresch’s pay barely changed with her promotion, and Coury earned more than twice what she did. Despite receiving a salary of $1, HP’s Meg Whitman has received between $15 and $16 million a year in the three years she has been CEO, but even this was not as much as the highly-paid and short-lived former CEO Leo Apothéker, paid $30.4 million in headline pay. Though, of course, since he was CEO for so short a time, he didn’t collect all of that. And at IBM, despite being very well paid, Virginia Rometty’s $14 million pales by comparison with Sam Palmisano’s $32 million in his final year.
Two female CEOs in the whole group succeeded female CEOs, at Yahoo! and Avon. As the highest paid CEO in the group, Marissa Mayer, CEO at Yahoo!, was paid $36.6 million in her first year. It’s a lot of money, but predecessor Carol Bartz’s sign on package was even bigger, at $47.2 million.
Throughout I have been using headline pay to compare current and former CEO pay, as this is the best way to understand a board’s estimate of the worth of a CEO. Looking at realized pay – that includes stock option profits and vested stock rather than estimates of future equity pay – predictably a very different picture emerges. In every case, realized pay was higher for the predecessor CEO. Given that realized pay in a CEO’s final year often represents the vesting or exercise of stock awards amassed over as much as 10 years, this is hardly a surprise, though many of the new female CEOs have long tenure with the company they now lead.
In general I have compared the first full year’s pay for the new female CEO to the last full year’s pay for the former male CEO. In some instances I have annualized fixed pay amounts such as base salary. The sample was limited to those female CEOs who were appointed three or less years ago.But what kind of job did these female CEOs walk into? In some cases, not a very pleasant one. Michelle Ryan and Alex Haslam of the University of Exeter’s School of Psychology coined the phrase Glass Cliff in their 2005 paper The Glass Cliff: Evidence that Women Are Over-Represented in Precarious Leadership Positions. The phrase refers to the fact that female CEOs are often promoted to positions of power when companies are in terrible straits.

Often, as the paper’s findings show, they sort out the problems and then are quietly replaced with a male CEO. There are three examples of this phenomenon in the group. Though one might find it difficult to imagine Marissa Mayer being quietly replaced, she was undoubtedly brought in to rescue Yahoo!’s fortunes. And at HP, Meg Whitman was brought in to resolve governance and due diligence problems. Just a few days ago, the company agreed to a $54.7 million legal settlement to resolve accusations that it misled investors during former CEO Apothéker’s tenure. Both these CEOs were brought in from outside the company to give it a fresh look, unassociated with past failures. That is certainly not the case at GM; Mary Barra has 33 years’ experience at the company. For that reason alone, it must be somewhat difficult to become the face of the new GM and apologize for a recall cover up that has claimed 13 lives. Yet her appointment would certainly seem to be the latest example of the Glass Cliff.
Although women have yet to achieve pay parity in the wider workplace, in the CEO’s office, at least at the largest companies in the US, they often out earn men, which is probably a good thing if they have to keep clearing up their predecessors’ messes.

Paul Hodgson is an independent governance analyst.