Racial Diversity and Inclusion Without Equity? Evidence from Executive Compensation

Part of the Lubar Research Seminar Series

Speaker:  Felipe Cabezon, Virginia Tech

The structure of managerial compensation, excluding CEOs, varies by ethnicity and race. Black, Hispanic, and Asian C-suite executives receive less equity-based pay than their White counterparts. As minority executives’ tenure increases or they move to firms with minority CEOs or firms near recent Black Lives Matter events, pay structure similarity improves. When this similarity increases, the pay gap between White and minority executives tightens, firm performance improves, financial fraud declines, and the CEO-to-median-worker pay ratio narrows. Race-based pay disparities are influenced by both minority executives’ preferences and corporate cultures where the idiosyncratic backgrounds of different executives take time to coalesce.