The Psychology Behind Paying Executives to Support Women Leaders

Want more women to want leadership roles at your company? Pay executives to help female employees succeed.

The psychology works like this: When women hear that their organization is committing money to achieving goals on female representation in management—even when that money flows to executives, not to them—they feel more confident that the company will support them if they decide to take on bigger roles, research by Harvard Business School Assistant Professor Edward H. Chang shows. In a field experiment at a global engineering company, almost 12% more women said they aspire to leadership positions when they learned that their employer provides incentive pay to executives for meeting female representation goals, compared to when an employer merely says the goal exists.

The findings come as many companies continue the decades-long struggle to boost female representation in leadership—and for some businesses, diversifying has become an even bigger uphill battle in recent years amid political and social pressures to pull back from diversity initiatives. “There has been clear backlash from some parties around efforts to diversify because of accusations of unfairness,” Chang says.

Payouts to managers for making progress toward meeting diversity goals work precisely because they send the message to female employees that companies are willing to put their resources and reputations behind their rhetoric. And these incentives don’t come at the expense of hiring quality candidates or alienating male employees, the findings show.

“We see positive effects of diversity incentives on women's leadership aspirations,” says Chang. “It's adding the incentive that makes a difference. Putting money behind the goal seems to be where the action is.”

Chang collaborated with Erika L. Kirgios, an assistant professor at the University of Chicago, on the study, “Diversity Incentives Can Increase Women’s Aspirations to Lead,” which appeared in the December edition of the Academy of Management Journal.

Women often have doubts about leading

In recent years, many companies have made a concerted effort to push for greater gender equity. In 2021, for example, McDonald’s and American Express each pledged to peg 15% of executive bonuses in part to increasing the number of female managers, with the fast-food giant creating a goal that women would occupy 45% of senior leadership spots.

Still, as a whole, women continue to remain largely underrepresented in corporate jobs in the United States, especially senior leadership positions, where they account for just 29% of C-suite roles, according to McKinsey. Meanwhile, past research shows that equally qualified women are less likely to seek leadership roles than men for various reasons: Many worry they’ll face gender discrimination, for instance, while others lack confidence that they’ll succeed and earn respect, especially if they’re leading male-dominated teams.

Rather than attempting to change women’s beliefs, Chang’s research indicates that companies can take practical steps that make a real difference by throwing money on the table to show they’re serious about advancing women.

“It can be tempting to say that we need to ‘fix the women’ to reduce gender disparities, but this work highlights how organizational structures and processes can be changed to shift women’s behavior without changing the women themselves,” the researchers write.

Women: You’ve got mail

Chang and Kirgios partnered with a telecommunications and engineering company that wanted to increase the percentage of women in management from 21% to 23% between 2021 and 2024. The company pledged to tie a portion of executives’ year-end bonuses to meeting the goal, giving researchers a real-world setting to study.

At performance review time in December 2022, 2,035 female employees in the company’s European and Latin American offices received one of three emails reminding them to complete their annual self-evaluations, each containing different information about the company’s diversity goal:

1. A general commitment to diversity: The first group got an email instructing them to find time to meet with their managers to complete their performance reviews. The email mentioned the company’s general commitment to diversity and encouraged employees to share their aspirations for future growth with their managers.

2. An explicit mention of the goal: The second group got the same email, along with the specific diversity target of increasing women’s representation in management from 21% to 23%, which the company stated twice.

3. Explaining incentives for achieving the goal: The third group received an email that went a step further, explaining that the company would reward executives with incentives for meeting the diversity target.

The psychology of incentives

The researchers found:

Talk is cheap. About 43% of women in the first group and 41% of women in the second group said they wanted more responsibilities. These targeted emails didn’t motivate as many women to raise their hands with the hope of advancing. “Setting goals alone without incentives may be viewed as ‘cheap talk,’ since there are no monetary stakes tied to the goals,” the researchers write.

… And money talks. Women who read that executives would be rewarded for successfully reaching the goal were 4.9 percentage points more likely than their peers in the first two groups to say they wanted to lead. Nearly 48% of women in that group indicated they were willing to assume a larger role.

Chang explains the psychology that underpins the difference: “In a world where now I know that executives are being paid to reach these goals, I think, ‘Hey, my manager is going to be more supportive if I say I want to be a leader. And that makes me more willing to express my underlying latent desire to become a manager.’”

What about men?

The researchers then used three online tests to validate the main field experiment and ask more pointed questions. One worry may be that incentives encourage women to aspire to leadership, but discourage men. But a study involving men did not find significant negative effects of diversity incentives on men’s leadership aspirations.

“It seems women respond positively, and men don't really respond,” Chang explains.

Meanwhile, the researchers found no evidence that the incentives were inspiring less qualified candidates to raise their hands; performance metrics showed that equally qualified women were stepping forward.

How companies can encourage women to lead

In addition to offering incentives, Chang says businesses can create a more supportive environment that encourages women to lead by taking the following steps:

Create a growth structure

Chang warns that companies need to be ready to follow through on the commitments they make by creating a path for growth. If women have aspirations to lead but there’s no ladder for them to rise, the company’s rhetoric will ring hollow.

Make a strong commitment

Staying the course with diversity initiatives despite external pressures to abandon them sends a strong message to women, says Chang. It shows employees that a company believes enough in the work that it’s even willing to take some legal and reputational risks.

Determine whether other underrepresented groups can benefit

“A lot of the ideas could be expanded to other historically underrepresented groups at work,” says Chang. “For any group that’s underrepresented in leadership, they might have questions about whether they're going to be supported if they aspire to ascend the ranks.”

Find other ways to support women in advancing

“Women are looking for credible signals that they will succeed,” the researchers write. “Communicating diversity incentives is one such intervention organizations can use, but more generally, organizations should consider how they can send signals to female employees that they will support their aspirations to become leaders.”

Illustration created with asset from AdobeStock/zest_marina.