Female board directorship and employee pay: International evidence from board gender diversity reforms

Abstract

This study examines how female board representation affects average employee pay (AEP). Using stacked difference-in-differences regressions on firm-year data from 65 countries spanning 1995 to 2019, we document a robust negative effect of board gender diversity reforms on AEP, with the effect concentrated in firms with high pre-reform agency costs. The reforms also increase female representation on governance, nominating, and compensation committees, consistent with female directors strengthening board monitoring and curbing agency-driven employee overcompensation. The negative effect on AEP is statistically insignificant in environments with strong employee bargaining power and in firms whose pre-reform pay is already below industry averages, highlighting important boundary conditions related to institutional constraints and female directors' stakeholder sensitivity. Analyses further show that the reforms reduce layoffs, which partially explains the decline in AEP through a wage and job security trade-off that preserves human capital while improving operating efficiency. The reforms also increase financial leverage, and this increase partially mediates the decline in AEP by imposing stronger external discipline on labor costs. Moreover, treated firms exhibit lower total staff costs, higher labor cost efficiency, and higher operating profit margins. Overall, the evidence suggests that female directors play a dual role by strengthening cost discipline and governance while also incorporating stakeholder-sensitive considerations, thereby reconciling shareholder–employee conflicts and supporting long-term firm sustainability.