A primary theoretical mechanism explaining forms of employment discrimination against ethnic minority executives is that stereotypes associated with executive positions lead to systematic biases against individuals who are not white (i.e., Powell and Butterfield, 1997; Dreher et al., 2011). The literature on stereotyping suggests that biases are manifest in a situation where individuals are perceived to be violating role expectations (Ilgen and Youtz, 1986; Heilman et al., 1989; Oakley, 2000; Ridgeway and Correll, 2004). The fact that the CEO role has been historically dominated by Whites suggests that non-white CEOs may suffer from the effect of these biases (i.e., Kanter, 1977; Fiske and Taylor, 1991; Powell et al., 2002; Heilman and Okimoto, 2008; Selody, 2010). Scholars have contended that the stereotypes of leadership positions result in biases against groups of individuals that have traditionally not occupied leadership positions. Researchers note two related ways by which biases associated with role expectations affect executives (Eagly and Karau, 2002). First, ethnic minorities in leadership positions may seem inappropriate or presumptuous when they display the behaviours often required in these roles (Koenig et al., 2011). Second, because Whites dominate leadership and management positions, ethnic minorities may appear less natural, and thus, are perceived as a bad fit for these positions (Heilman et al., 1989; Heilman, 1995; Lyness and Heilman, 2006; Heilman and Okimoto, 2008). The net effect of these two biases is that, regardless of whether ethnic minorities perform in accordance with the role, generalizations associated with the position continue triggering bias against individuals of minority status. Since ethnic minorities are perceived as less natural in the position when they exhibit actions and behaviours expected of the position, the actions and behaviours appear improper or out of place (Regan et al., 1974). Meta-analyses support these notions, finding that minorities endure an assortment of biases when attaining positions traditionally occupied by nonminority groups (Swim et al., 1989; Eagly et al., 1992, 1995)
Extending the theory on role stereotyping, biases associated with the CEO position may adversely affect how ethnic minorities are evaluated by the board. Kulich et al. (2011) note that stereotypical perceptions about the CEO position affect how the board evaluates executives, since the CEO position has predominantly been held by Whites. Boards may view ethnic minorities as a poor fit for the CEO position simply because these individuals do not fit preconceived expectations about who should be CEO (i.e., Greenhaus and Parasuraman, 1993; Oakley, 2000; Hom et al., 2008). Further, minority status CEOs may be regarded as individuals who are undeserving and who have advanced through favourable policies such as affirmative action (Pettigrew and Martin, 1987; Landau, 1995). Because of the stereotype that CEOs are typically White males, board members may misattribute favourable outcomes associated with an ethnic minority CEO’s performance to factors outside of the CEO’s ability and actions while at the same time attributing unfavourable outcomes associated with the CEO to his/her inability, poor fit, or inappropriate action (Regan et al., 1974; Greenhaus and Parasuraman, 1993; Hom et al., 2008). Even after performing well, ethnic minority CEOs are less likely to receive compensation and pay raises commensurate with their performance on the job. This unfair outcome results because ethnic minorities violate role expectations and the performance during their tenure that would normally result in a raise may be misattributed and, as a result, the board will be less likely to reward ethnic minority CEOs with commensurate salary or pay raise (Hill et al., 2015). Alternatively, compensation committee members may face asymmetric information about executive ability and use their perceptions about average minority group ability to statistically discriminate on pay. The evidence thus far points towards lower compensation for minority executives.
Given the aforementioned stereotypes and biases, it is perhaps not surprising that evidence suggests that executives of minority status rarely attain CEO positions (Catalyst, 2008). While the scarcity of ethnic minority CEOs indicates that stereotypes may be manifest to their handicap, resource-based arguments suggest that minority executives who can attain CEO positions may actually benefit (Barney, 1991). If ethnic minority CEOs are valuable to employers, their rare and inimitable minority status may be beneficial such that they can expect to receive higher compensation (i.e., Henderson and Frederickson, 1996; Coff, 1999). The fact that minority executives must overcome various barriers (i.e., Blau and Kahn, 2000; Bertrand and Hallock, 2001; Blau and Devaro, 2007; Selody, 2010) and disparate treatment (i.e., Dreher et al., 2011; Rudman et al., 2012; West et al., 2012) in their ascensions to the executive ranks suggests that those who survive to advance to CEO position may be particularly gifted or good at learning from and dealing with adversity. In line with this view, Hill et al. (2015) contend that there are a number of ways ethnic minority CEOs are valuable. First, an ethnic minority CEO may provide a different perspective than a CEO who is White. Scholars argue that diverse executives can assist the firm not only in understanding the needs of a diverse target market but also in broadening decision making (Brammer et al., 2007; Miller and Triana, 2009). Both of these abilities can be particularly valuable given that the vast majority of executives and board members are White (Catalyst, 2008). Similarly, firms may benefit from perspectives that ethnic minorities bring to group decision making. Since the workforce is drastically more diverse than executive management (Dalton and Dalton, 2010), having an ethnic minority CEO demonstrates equity in human resource practices, and this equity can have position implications for employees of minority status (Dezso and Ross, 2012, Krawiec et al., 2013). Further, qualitative evidence from interviews of directors and executives with experience in boards’ selection processes supports the view that minority status is a valuable, rare, and inimitable resource that boards seek (i.e., Broome et al., 2011). Given that ethnic minority CEOs are valuable, rare, and inimitable, consistent with the resource-based contentions outlined above, CEOs may benefit from their minority status by extracting a higher compensation in exchange for their services. Therefore, I hypothesize:
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