Where is the Romance for Women in Leadership? Gender Effects on the Romance of Leadership and Performance-Based Pay

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1 1 Clara Kulich, Michelle Ryan and Alex Haslam School of Psychology, University of Exeter Where is the Romance for Women in Leadership? Gender Effects on the Romance of Leadership and Performance-Based Pay Abstract The gender-wage gap in leadership positions is even wider than in lower positions. One possible reason for the pay gap could be that women are not successful managers. Indeed, research into the romance of leadership suggests that managers abilities are judged on the basis of their companies performance (Meindl, Ehrlich & Durkerich, 1985). But previous research has not controlled for gender, so little is known about the dynamics involved in the romance of leadership for female managers. This paper presents an experimental study (N = 210) investigating the perception of managers leadership and their performance-based remuneration as a function of increasing versus decreasing company performance before and after the appointment of Chief Executive Officer. Results suggest that the award of a bonus to a male manager is directly determined by company performance, whereas for a female manager this relationship is fully mediated by the perception of their leadership ability. We conclude that female managers are not automatically perceived as agents of company performance but have to prove their leadership abilities before a relation between the manager s leadership agency and a company s success is perceived. Further, our study suggests that performance-based remuneration can be seen as indicator of the romance of leadership, particularly for male managers. Having found a distinct process of bonus attribution to male and female managers, a gender related difference in the nature of romance of leadership was revealed. Implications of these results for the remuneration of women holding top-leadership positions are discussed. Key words: gender wage gap, romance of leadership, leadership agency, glass cliff Address for correspondence: c.kulich@exeter.ac.uk Introduction Women are kept from climbing up to top positions in organisational hierarchies by a glass-ceiling, an invisible barrier. On the other hand men are promoted through the organisational ranks by a glass-elevator. Some token women have broken through the glass-ceiling, but women are still under-represented in management positions. In the UK only ten percent of managing directors and boards of directors are female (EOC, 2002). Moreover, having gained leadership positions, women again experience gender-related discrimination: they earn much lower wages than men in comparable occupations (Clarke, 2001; EOC, 2003). In the EU the gender income gap is highest in managerial positions (Benassi, 1999) and in the UK female managers earn 30% less than male managers (EOC, 2003). Recently, for example Wilhemine Goldmann, the new female manager of the national Austrian transport system, was awarded a lower salary than her male predecessor (Sommer, 2005). One possible explanation of the gender wage gap is that remuneration of top managers is based on performance and women are simply not successful managers. For example, Kate Swan, one of the few female Chief Executive Officers (CEO) in the UK, was recently denied a performance bonus after her struggling company failed to perform well (Treanor, 2005). Indeed, research provides evidence of a positive correlation between executive remuneration and company performance (Cosh, 1975; Coyon, 1998). Looking at company performance post-ceo appointment, companies with female managers seem to be mostly underperforming (Judge, 2003). However, when looking at company performance before CEOs are appointed,

2 2 it appears that women are primarily selected for leadership positions in ill-performing companies (Ryan & Haslam, 2005). Accordingly, the initial conditions women face when entering management positions are often not conducive for successful outcomes and consequently the acquirement of performance-based incentives is less likely. The romance of leadership and remuneration Performance-based remuneration involves a process of evaluating a manager s leadership abilities and then paying them accordingly. Remuneration is therefore linked to a manager s perceived leadership skills. This is routinely regarded as an individual personality trait and company performance is seen as a direct result of a manager s leadership abilities. However, this direct relationship may be socially constructed since the perception of a person as a leader has been shown to be shaped by the beliefs held by their followers. In studies on the romance of leadership people were asked to make judgement of the charisma of leaders and it was revealed that these judgements strongly depend on contextual factors such as a company s success, the organisational structure, the presence of a crisis or group processes (Emrich, 1999; Haslam, 2001/2004; Meindl, Ehrlich, & Durkerich, 1985; Meindl, 1995; Pillai & Meindl, 1991). For example, if company performance is good a manager will be perceived to have charisma and if the performance is bad they are perceived to lack charisma, irrespective of their actual abilities or consideration of other possible external factors which may have an influence on the company s outcome such as economic fluctuations or share price. The evaluation of managers as good or bad leaders consequently takes place as a function of leadership-agency beliefs. A manager s charisma and leadership abilities are inferred from the assumption that they have an impact on a company s outcome. Being a good or a bad leader therefore does not tell us anything about the manager s inherent personal traits but about people s romanticized conceptions about a manager s leadership. Looking at the remuneration of managers as an evaluative process, a very similar pattern compared to the relationship of perception of leadership and company performance appears. From a positive company outcome it is inferred that the manager must have done a good job and from a bad outcome that they have not displayed good leadership abilities. The similarity to the investigated relationship of charisma and company performance suggests that performance-based remuneration is based on the romance of leadership. In a study looking at male CEOs of the largest US firms a direct relationship of perceived CEO charisma and CEO pay was found. There was also a relationship of pay and company performance which has been seen to reflect the romance of leadership (Tosi, Misangyi, Fanelli, Waldman, & Yammarino, 2004). Dealing with remuneration, the romance of leadership appears to be a potential explanation for the relationship of company performance and manager s pay and at the same time a new dimension on which to investigate the romance of leadership. Gender and the romance of leadership The evaluation of managers has been identified as being associated to a company s performance as researched in the romance of leadership. However, other research suggests that, in the evaluation of managers, gender should be taken into account since gender stereotypes lead to differences in the evaluation of male and female managers. Studies on think manager-think male beliefs have revealed that the prototypical manager in a successful organisational context is male (Schein, 1973, 1975). The idea of a good manager is linked to a male agent and women are not expected to show managerial qualities. These beliefs are descriptive as well as prescriptive in nature (Heilman, 2001) and women who do not fit the managerial norm are consequently perceived to be less credible as influence agents (Carli, 2001). Not being acknowledged as an influential leader, it follows that they may also not be perceived as agents for company performance. Indeed, gender stereotypes contain status markers which imply higher instrumentally in competence of men, so that they are

3 3 ascribed agentic competences while women are seen as reactive and high in communality (Ridgeway, 2001). A gender-role inconsistent behaviour, such as women showing managerial qualities, can result in less favourable treatment of female managers (Eagly & Karau, 2002). Even if women perform valuable work this is often attributed to external factors in the first place (Heilman, 2001). In a meta-analysis Eagly, Makhijani, and Karau (1992) showed that despite the fact that performance of male and female leaders was controlled for, women were evaluated less favourably as leaders than men. Taking into account the impact of gender on the evaluation of managers, it thus follows that the romance of leadership may not hold for female managers. Romance of leadership is based on the perception of leadership agency a quality which is not expected to be found in women. Performance-based remuneration is also a form of romance of leadership relying on the agency function of an individual. If women lack this function due to different gender-beliefs relating to what a successful leader ought to be like, they may be rewarded differently from their male counterparts. The present study As outlined above, performance-based remuneration relies on the evaluation of leadership and we suggest that it can therefore serve as an indicator of romance of leadership. An association of company performance and manager s remuneration is expected (H1). Previous studies on the romance of leadership do not take gender into account, although other research suggests that different beliefs about men and women have an influence on how they are evaluated as managers. In the present study we want to explore the gender wage gap in top-managerial positions by focussing on performance-based remuneration as a measure of romance of leadership, including gender as a key variable. The impact of company performance on how people perceive a male and a female manager as an adequate leader and on how much of a bonus they would give them will be investigated. Taking gender into account, we want to investigate whether the romance of leadership holds for women as well as for men. We assume that gender has an influence on the relationship of company performance after a CEO was appointed and the bonus awarded to a CEO (H2). For a male manager a similar pattern as in previous romance of leadership research is expected to occur with performance-based remuneration. They should be given more of a bonus when the company performance is improving and less when it is declining (H3). In contrast to the male manager, we suggest that a female leader may not be perceived automatically as agent of company performance and therefore will not be paid accordingly. There should be no direct relation of company performance and the remuneration a female manager is given (H4). Method Participants and design Participants were 210 individuals with working experience in the UK and the USA. Sixty per cent of the participants indicated that they had held a leadership position in a working situation. The median age of the participants was 28 years; 51% were female and 49% were male. Participants were given an article about a company to read in which company performance and the gender of its Chief Executive Officer (CEO) was manipulated. The study had a 2 (pre-appointment performance: improving, declining) x 2 (post-appointment performance: improving, declining) x 2 (gender of CEO: male, female) between-participants design.

4 4 Material and procedure In an online questionnaire participants randomly received an article, purportedly published by an international multimedia agency. The article presented details of a company s performance before and after the appointment of its current CEO as well as comments from this CEO. The material presented was ambivalent on the CEO s actual impact on company performance. Participants read the article and then answered questions about their perceptions of the CEO as a leader and how much of a performance based bonus they would give the CEO. At the end of the questionnaire a debriefing was provided. Perception of leadership was measured by the items presented in Table 1. One factor was extracted with eight items (α=.90) loading.70 and higher, explaining % of the variance. Each item was measured on a five point-scale, with one representing low agreement and five representing high agreement with each statement. The amount of bonus to choose from was no bonus, 2, 4, 6, 8, 10, 12 or more than 12 week-wages. Table 1: Perception of leadership items (five point-scale) She/He is a good leader. She/He has good leadership skills. She/He is a model for others to follow. She/He makes everyone around her/him enthusiastic. She/He has what it takes to be a good leader. She/He is an inspiration to others. She/He has the presence of a leader. She/He is a symbol of success and accomplishment. Results Company performance and the attribution of bonus In order to investigate the impact of company performance on the bonus awarded to the CEO a 2 (pre-appointment performance: improving, declining) x 2 (post-appointment performance: improving, declining) x 2 (gender of CEO: male, female) ANCOVA was conducted with perceptions of leadership as a covariate. Table 2 presents the means and standard deviations of the four company performance conditions as a function of gender. Table 2: Means (M), Standard Deviations (SD) and sample sizes for pre- and postappointment conditions Pre- appointment performance Post-appointment performance Bonus given Perception of leadership Sample size N Male female Male female male female declining declining M SD improving M SD improving declining M SD improving M SD Notes: 1 Due to a computer based randomizing problem this sample was smaller. Analyses revealed that the perception of leadership had a main effect on the bonus given, F 1,201 =17.55, p<.00. The better a manager was perceived to be a leader the more of a bonus they were awarded. No effect for pre-appointment performance F 1,201 =0.76, p>.05 on

5 5 the bonus given was found. However, in line with our first hypothesis (H1) post-appointment performance had a main effect on the bonus given to the CEO, F 1,201 =20.79, p<.00, such that CEOs were awarded a larger bonus when performance improved (M=3.18) than when it declined (M=1.38). In line with our second hypothesis (H2), gender had an influence on the relationship of post appointment performance and the bonus awarded to a CEO. There was a significant twoway interaction of post-appointment performance and gender, F 1,201 =3.813, p=.05 on the bonus awarded. Means of post-appointment bonuses are presented in Figure 1. Figure 1: Means of bonus given 4 CEO gender male CEO female CEO Mean bonus given declining improving Company performance (post CEO appointment) Notes: Bonus was measured on an eight point scale of additional week-wages. The male manager s bonus shows a greater difference for bad versus good postappointment company than the female CEO s bonus (Figure 1). In order to further investigate the nature of this interaction, an analysis of simple effects was conducted. Analyses revealed that, in line with our third hypothesis (H3), men were paid significantly more when their company was doing well (M=3.36) and less when it was doing badly (M=1.23), F 1,201 =26.99, p<.00. However, for a female manager, no differences of the amount of bonus given to her under conditions of declining (M=1.56) versus improving (M=2.93) company performance was found, F 1,201 =3.33, p>.05. A female manager s performance-based remuneration was thus not affected by the company s performance as predicted by our fourth hypothesis (H4). This asymmetry led us to the assumption that a qualitatively different process may be going on in the distribution of bonuses to male and female managers. This assumption was tested in a regression analysis. Romance of Leadership and the process of bonus attribution In order to investigate the nature of the gender differences in the attribution of a bonus to male and female CEOs two separate linear regressions were conducted, looking at the mediation effect of the perception of leadership for post-appointment company performance. Figure 2 displays separate regression results for male and female CEOs. As suggested by Baron and Kenny (1986), first the unmediated direct effect of company performance on the bonus given was tested. For male managers post-appointment performance had a significant positive effect on the amount of bonus given to him, b male =.55, p<.00. If perception of leadership is included as a mediator a strong direct effect of company performance and bonus maintains, b male =.47, p<.00. The perception of leadership has a much

6 6 less important predictive value, b male =.17, p=.05, and the relationship of post-appointment company performance to the perception of their leadership is also minor, b male =.28. p=.00. For female managers post-appointment performance had also a significant positive effect on the amount of bonus given to her, b female =.32, p<.00. However, when perception of leadership was taken into account as a mediator, post-appointment performance served not as a predictor for the bonus given to a female manager, b female =.13, p>.05. The amount of bonus given to her was fully mediated by the perception of her leadership: Company performance served as a strong predictor for the perception of leadership, b female =.45, p<.00, which predicted the amount of bonus given, b female =.40, p<.00. Overall, the male manager s bonus was best explained by post-appointment company, whereas the female manager s bonus was best predicted by the perception of her leadership. No effects related to the gender or age of the participants were found in this study. Figure 2: Results of the regression analyses on bonus given MALE MANAGER FEMALE MANAGER Perceived leadership.28**.17* Perceived leadership.45**.40** Postappointment company performance Bonus given Postappointment.47** (.55**) company performance.13 (.32**) Bonus given Notes: *p<.05, **p<.01; Beta values of linear regressions are displayed; numbers in brackets show beta values without mediator effect. Continuous lines represent significant effects (p<0.5) and broken lines not significant effects. The thickness of the lines is an indicator of the relative strength of the effect. DISCUSSION The nature of romance of leadership in the process of bonus attribution Exploring the nature of the romance of leadership (Meindl, Ehrlich & Durkerich, 1985; Pillai & Meindl, 1991) two measures were analyzed in relation to company performance: a bonus given to the manager and the perception of the manager s leadership. Consistent with past research (Coyon, 1998), company performance was shown to have an impact on the bonus which was awarded to a CEO. In line with the romance of leadership, the better a company s performance the more of a bonus was given to its CEO. We therefore suggest that remuneration may serve as an indicator of romance of leadership. This relationship was only found for company performance after the appointment of the current CEO, company performance before the CEO was appointed did not matter for the amount of bonus given to the CEO. However, as hypothesised gender moderated the impact of company performance on the bonus given when leadership ability was taken into account. A more detailed analysis revealed that the male manager s bonus was sensitive to the company s performance, as predicted by the romance of leadership, where good performance was directly related to high pay, bad performance to low pay. In contrast, for the female manager this relationship was attenuated. Indeed, for the female CEO a different nature of romance of leadership was

7 7 observed. The link of company performance and the performance-based bonus was fully mediated by the perception of her leadership. In contrast to the male manager no direct relationship of corporate performance and bonus given was found once perceptions of leadership ability was considered. There is a strong association of company performance and the perception of her leadership. The perception of leadership predicts the bonus given which implies that romance of leadership does take place but the process for a female manager is more complex than for a male counterpart. Explanations and implications From our results we propose the following explanations and implications for women in top-positions. 1. Leadership-agency The romance of leadership seems to occur in some way for both male as well as female managers but the nature of the process was demonstrated to be different. Men s success seems to be acknowledged without questioning their leadership abilities, whereas women s abilities are checked more carefully before drawing conclusions from positive outcomes to a female manager s impact. For women the relationship between company performance and their evaluation in financial and personal terms was less clear cut than for their male counterparts, for whom a classic romance of leadership occurred. One potential explanation for the distinct nature of this process refers to gender roles and agency. As discussed in the introduction, reasons for the distinct evaluation of a female manager may lie in her occupation of a prototypical male role, which contradicts expectations on how a woman ought to behave. One dimension which appears to be of importance in the evaluation of managers is agency. Groups, and specifically gender, tend to be stereotyped along two dimensions: competence and warmth. Competence is also described in terms of agentic or instrumental qualities (Fiske et al, 1999; 2002), which are stereotyped as being typically male. The outcome of our study that women s remuneration is mediated by the perception of their leadership abilities may be due to stereotypical beliefs which reflect women as having rather communual and nurturer or warm qualities. For a woman agentic behaviour is untypical and has to be proven to be present before she is perceived as agent for company performance. For this reason the perception of her leadership abilities may have been an essential predictor of her performance based remuneration in our study. Implicit theories on what a manager is expected to be like have to be overcome before people are willing to regard women as agents of company performance and reward them accordingly a process which seems to be redundant when rewarding a male manager who is automatically related to agency traits. Consequently, the male manager was perceived as an agent of leadership and rewarded in accordance to company performance straight away. The female manager was neither particularly rewarded when her company was successful compared to a male counterpart who received more of a bonus, nor was she particularly blamed for a negative company performance. She got a smaller bonus when company performance was bad but the bonus was not as drastically reduced as the male CEO s bonus in the same condition. 2. The Glass Cliff In a successful environment the lack of leadership agency has negative consequences for women. According to the classic romance of leadership managers would be awarded a bonus as a function of company performance but no relation of the female manager s performance and the company s outcome is perceived. Consequently, if the corporate performance is good a female manager gets less of a bonus than a male counterpart would be given. However, low leadership agency may also have positive consequences since women may not be as blamed for negative company outcomes. According to an archival study on the FTSE 100 UK companies, followed up by experimental studies, women are more likely to be

8 8 put into precarious leadership positions, that is, companies with a negative performance in the past, a phenomenon termed the glass cliff (Ryan & Haslam, 2005). The lack of leadership agency may protect women in these glass cliff positions from being blamed for outcomes which are partly or fully influenced by past events. The functioning of the romance of leadership could be a dangerous and damaging mechanism for women in these precarious positions. Glass cliff research further highlights serious consequences for the finding that corporate performance after a CEO s appointment matters more than its performance before a manager is brought into a company. The over-representation of female managers in ill performing companies and neglecting the fact that company-performance was already declining before the CEO was appointed can lead to the assumption of women being bad leaders and further to denial of appropriate remuneration. Although women in our study were not disadvantaged in their remuneration in general - they would receive a little bit more than men in ill-performing companies and a little less in well performing companies this finding does not contradict statistics on a wide gender wage gap in leadership positions (Clarke, 2001; EOC, 2003). According to glass cliff research a higher proportion of women is found in precarious positions so the gender wage gap may persist due to over presentation of women in these lower paid positions. According to our results and the reported corporate performance and pay relationship (Coyon, 1998), they will be less paid in underperforming companies. Future research Future research should concentrate on the perception and beliefs on leadership-agency and the nature of romance of leadership in the remuneration process of male and female managers in different organisational contexts. The gender wage gap in top-positions appears to be strongly related to romanticized conceptions of the relations of male and female managers to company performance. If managers are generally paid less in companies with a bad company performance the gender wage gap might be due to the over-representation of women in precarious leadership positions. An investigation of the impact of women s likeliness to be put into glass cliff positions on their remuneration is presently done in an archival study looking at CEOs in the FTSE 250 companies in the UK. CONCLUSION The results of this study demonstrate a gender-related difference in the romance of leadership. This difference was manifested in the role that the perception of leadership played for the financial evaluation of managers. The perception of leadership as well as the remuneration of managers are functions of company performance which is termed the romance of leadership. However, if looking at the remuneration process female and male managers were evaluated in different ways. A male manager was rewarded a bonus directly based on post-appointment company performance, whereas a female manager s bonus was fully mediated by the perception of her leadership. She was looked at more carefully, not company performance as such but the perception of her leadership was the crucial dimension on which level of a bonus she should be given. We conclude from our findings that the gender wage gap cannot be sufficiently explained by merely comparing male and female managers wages but the process of remuneration has to be analysed. In order to do so, measures of romance of leadership and the perception of a manager as an agent of leadership is important. Future research should focus on leadership agency and the romance of leadership under a gender perspective in order to help identify mechanisms which are specifically responsible for the gender wage gap in leadership positions. This includes an analysis of the beliefs people hold on female and male

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