What Does Your CEO’s Salary Say About Your Company?

What Does Your CEO's Salary Say About Your Company?

In decades past, few people were aware of the salaries of others. You might have heard whispers in the hallway or gained an idea of your supervisor’s pay rate, but most salary information was held close to a company’s vest.

In today’s world, the salaries of many company CEOs are available with just a few clicks of the mouse. That kind of transparency has a number of benefits, but there are also drawbacks. The salary that your CEO is paid can have a significant impact on how the public views your company.

Consumers Don’t Want to Support Inflated Salaries

A recent study conducted by Harvard University suggests that consumers are put off by companies that pay high salaries to their top executives. More specifically, it is the difference between what executives are paid and what the average worker brings home that seems to have an impact on consumer decision-making.

Consumers avoided companies that had a high CEO-to-worker-pay ratio in favor of those that have less of a gap between the top-end and average pay rates.

How Much of an Impact Do Pay Ratios Have?

Researchers discovered that consumers are willing to pay more for the same goods and services if they feel that a company is fairly compensating all workers. In fact, in order for a company with a higher CEO-to-worker-pay ratio to appeal to consumers, the cost of the products or services offered must be reduced by nearly 50 percent.

Researchers at Harvard University discovered that consumers are willing to pay more for the same goods and services if they feel that a company is fairly compensating all workers.

This gives companies with less of a pay gap between the highest and lowest levels an incentive to advertise that fact in an effort to attract new customers.

What Can Be Done?

Consumers want to feel good about the things they buy. According to the Economic Policy Institute, executives at the nation’s 350 biggest companies make an average of 300 times the salary earned by a median worker. What most of them will say is that this pay disparity is the result of a scarcity of talent at the highest levels.

They argue that there are simply fewer people qualified to lead a large company than there are workers who fill the lower-paying positions. Of course, learning that a company’s CEO makes more than $16 million per year can make that argument hard to accept.

One way that companies can offset any losses related to CEO-to-worker-pay ratios is to increase the pay of those workers at the bottom of the scale. In addition, creating employee benefit and incentive packages can also lead to positive media attention and word-of-mouth about a company.

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That goodwill can quickly spread, and can lead many consumers to seek out the goods and services offered by a company that they perceived as being fair. To that end, creating marketing campaigns that focus on a company’s efforts regarding working conditions and compensation can have a far-reaching impact, and can make a world of difference on the bottom line.

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