Mrs Christine Esplin was dismissed by QS Familywear after returning from holiday last year when the company told her she had lost the trust and confidence of other directors.
She had earlier told the retail clothing firm that she was taking her claim for equal pay with the male merchandise director, to an industrial tribunal.
Mrs Esplin, 48, from Hove in East Sussex, who earned pounds 42,500, has settled her case out of court, with payment of pounds 120,000 and enhanced pension rights of pounds 20,000, one of the highest settlements of its kind. She claimed for lost earnings, pension and other benefits together with compensation for the difference in pay between herself and her male colleague.
The settlement was based on Mrs Esplin's claims that her earnings potential for the next 17 years had been seriously affected by the company's actions. Details of the salary of her male colleague have been withheld under terms of the settlement.
"I felt very strongly about achieving equal pay because there was a substantial difference in my pay and that of the merchandise director, who joined the board at the same time as I did," Mrs Esplin said.
She added: "I would hope this settlement would deter employers from victimising employees who bring equality claims.
"I am delighted that QS have undertaken to review their payment systems and amend their equal opportunities policy."
Mrs Esplin joined the firm - a clothing retail chain with around 100 stores mainly in the South-east - in 1987 as the company's personnel manager.
In 1993 she was appointed to the board of directors.
QS Familywear said it refuted allegations of sexual discrimination and unfair dismissal and had decided to settle to avoid further costs and the use of valuable management time.
Nine out of 10 employees were women and the company's equal pay policy was "fair and attractive".
The Equal Opportunities Commission, which supported the case, said it was concerned that launching an equal pay claim should not result in an employee being victimised.
Diana Brittan, deputy chairwoman of the EOC, said: "This should demonstrate to all employers that sex discrimination does not pay.
"The Commission supported this case as we are concerned that, having reached senior positions, women are not then discriminated against in their pay.
"At present, women directors only receive 72 per cent of male director pay."
"The Commission was also concerned that exercising the right to take an equal pay claim should not result in an employee being subjected to victimisation by the employer."
Mrs Esplin's case illustrated how sex discrimination and equal pay legislation could address discriminatory pay and practices at a senior management level.
Until 1993, compensation for claims brought under the Sex Discrimination Act 1975 was capped at 11,000, but claimants can now be compensated to the full extent of their loss.Reuse content