Consumer Perception of Prioritizing Employee Salaries: Paper Summary
In economic crises, how should companies prioritize salaries in order to maximize consumer loyalty? A hint: it’s all about the employees.
In economic crises, how should companies prioritize salaries in order to maximize consumer loyalty? A hint: it’s all about the employees.
Since 1978, CEO pay has grown over 30% more quickly than the stock market itself.1 And consumers have taken note. The politics of CEO pay came front and cenre during the COVID-19 pandemic, when many businesses were forced to cut costs in order to survive. While some companies prioritized ensuring regular employee pay, millions more were furloughed.1 How do these decisions impact consumer perceptions of brands?
In a world increasingly driven by corporate dynamics, the decisions a company makes during tough times become emblematic of its values. It can shape the very perception consumers hold of the brand. Recent research has thrown into sharp relief the significance of these decisions, particularly in the complex context of the COVID-19 pandemic.
The Experiments and Their Outcomes
The most salient finding? Employees should always come first.
When companies committed to ensuring that their regular employees received their wages, consumers responded the most positively (Study 1). This effect remained constant, even if the CEO continued to get their usual pay. What is evident here is a straightforward truth - in times of crisis, consumers care more about the well-being of employees than about executive compensation or the fairness of pay ratios.
Why is this the case? Digging deeper into consumer psychology, it seems that the perception of financial distress experienced by everyday employees plays a pivotal role (Study 2). This is especially compelling considering that these effects held firm regardless of whether the consumers' personal financial situation was impacted by the pandemic.
Moreover, in a practical setting where participants were given the power to make purchases based on company salary information, firms that maintained retail employee salaries were clear favorites (Study 3). This was irrespective of what the companies decided regarding CEO pay, reaffirming the sentiment that consumers value the financial security of regular employees in times of crisis.
However, when the shadow of an external crisis like COVID-19 was lifted, the narrative shifted subtly. Consumers still favored firms that maintained employee salaries, but cutting the CEO’s pay provided an added advantage (Study 4). In simpler terms, when immediate threats like massive unemployment fade into the background, consumers appreciate brands that balance the scales of pay.
The Science Behind the Sentiments
At the heart of these findings is a profound reflection on human empathy and the shared experience of struggle. It is clear that during adversities like the COVID-19 pandemic, consumers resonate more with the financial pain of everyday employees than with the intricate dynamics of CEO-to-employee pay ratios.
Moreover, the data suggests that consumers want to support businesses that prioritize the welfare of their employees. This translates into a tangible business advantage, as consumer loyalty and willingness to buy can potentially increase.
Practical Takeaways for Business Leaders
- Employee Welfare is Good Business: Ensuring that your employees are taken care of isn’t just morally right—it's a smart business move that can lead to increased consumer trust and loyalty.
- Transparency Matters: Companies that were upfront about their salary decisions saw benefits. Consumers value transparency, especially in challenging times.
- CEO Salaries in the Spotlight: While maintaining employee salaries is paramount, reevaluating executive compensation during non-crisis times can offer a subtle boost to consumer perceptions.
The world of business is built on relationships. The decisions companies make, especially during times of crisis, can strengthen or strain these relationships. Prioritizing employees doesn't just build internal morale, it can resonate with consumers and create a ripple effect of loyalty and trust that can weather any storm.
The science has spoken. Now it's time for business leaders worldwide to listen, learn, and lead with empathy.
Sources
- Mishel, L. and J. Wolfe (2019), CEO compensation has grown 940% since 1978. Economic Policy Institute. Retrieved from: https://www.epi.org/publication/ceo-compensation-2018/.
