Can Your CEO-To-Worker Pay Ratio Hurt Your Employer Brand?

 In the years running up to the recent global financial crisis, the executive psyche in certain sector, became consumed by greed, excessive risk taking and a loss of integrity—although at the time it looked like unbridled passion and success.

Of course, when the economy and financial systems  crashed, we all knew something was wrong and then the folly was discovered. Now, corrective measures are being put in place and some of these are beginning to ripple through to HR. For example, just recently the Charted Institute for Securities and Investment has started requiring its members to go through integrity screening.

Another area for HR to think about, which is inextricably connected to the global economic situation, is the new SEC proposal, (which is not without opposition and controversy), that companies of a certain size in the U.S. should disclose their CEO-to-worker pay ratio, e.g. how many multiples of the average worker’s salary is the CEO salary. Now, this is a political battlefield (and there is much debate to follow) but the fact that CEO-to-worker pay ratios have increased 1000% since 1950 suggests that there will be a fierce debate.

But, how do these proposals and this whole subject area impact HR? Well, you can be sure that the topic of CEO-to-worker pay ratios will become a more pressing public issue and perhaps shed light on your own employer’s pay practices; meaning it could impact or even damage both your company and employer brand.

From an HR perspective, the question is, “Do high CEO-to-worker pay ratios have a material impact on the employer brand, that is, making it easier or harder to engage, motivate, attract and retain staff?”

Well, research from Payscale suggests it can impact the brand. For example, they examined the pay of CEOS in the Fortune 100 and found that companies with the top five highest CEO-to-worker pay ratios (1034:1 to 434:1) had average job satisfaction levels of 62.4 percent; with 2 out of 5 of them paying below market rate; two on market rate and only one above.

Contrast this with the top five lowest CEO-to-worker pay ratios, ranging from 18:1 to 9:1, where employees had average job satisfaction levels of 74.8 percent with 4 out of 5 paying above market rate.

So, there is clearly a case to suggest that excessively high CEO-to-worker pay ratios may be negatively impacting employer brand, employee satisfaction, (and potentially engagement), and ultimately the bottom line.

But, an important question is then, what is the right ratio? A Washington post article  makes cases for various ratios, such as 147 -1 (as seen in Germany); or 58-1 the figure before the stock options craze of the 1990s; or 20-25-1 (Peter Drucker, Drucker Institute at Claremont University ). But, no real answer was attempted in a several hundred word article. I am sure it will take years of debate and research to come up with a meaningful figure or range.

But, in the meantime, I think it’s clear that your CEO-to-worker to pay ratio can impact and damage your brand and HR professionals should be at least looking to assess and quantify its impact in their own organizations?