A study of linkages among leadership gender diversity, pay equity practices and financial performance

Purpose Pay equity practices may help address the gender pay gap and resulting inequalities, which have organizational, economic, and social implications. Little is known about the determinants and benefits of pay equity practices. The knowledge created through this research can help drive and justify the offering of pay equity practices. Using an institutional theory lens, we propose: a positive relationship between leadership gender diversity and financial performance, a positive relationship between leadership gender diversity and pay equity practices, a positive relationship between pay equity practices and financial performance, and a mediating role of pay equity practices between leadership gender diversity and financial performance. Design/methodology/approach Based on a time-lagged design, archival data from multiple sources were collected from up to 4,943 organizations in Australia. Findings The analyses supported all hypotheses. The findings support and extend institutional theory, addressing important knowledge gaps pertaining to determinants and outcomes of pay equity practices and the mediating role of pay equity practices. Practical implications Practical implications include the need for management of leadership gender diversity to drive pay equity practices and financial performance. Originality/value Using novel theorizing, we provide new evidence for relationships between leadership gender diversity and pay equity practices, pay equity practices and operating revenue, and a mediating role of pay equity practices. These findings set a new solution-focused direction for pay equity research, as past research focused on pay gaps and perceived pay inequity.