Many companies have been forced to adapt in the wake of the economic downturn due to the coronavirus pandemic, turning to employee layoffs, furloughs and salary cuts.
Do consumers care where in the organization those pay cuts come from? Behavioral analyst Michael Norton told Boston Public Radio on Wednesday that consumers "absolutely" care about CEO and employee pay ratios.
Companies have taken to a variety of options in order to stay afloat. Some focused on executive and CEO pay, some focused on employee pay, and some did a combination of both, said Norton.
According to research Norton conducted with Bhavya Mohan, an assistant professor at the University of San Francisco, when consumers know a company has slashed worker pay or laid off employees without also trimming from the top, they're less likely to shop there.
"What we tend to see over time is that more retailers now, if they're going to announce employee wage cuts or employee furloughs, they now combine it with CEO pay cuts," said Norton, whereas earlier this year as companies started to feel the impacts of the downturn in the economy, they would just announce impacts to employees. "There was some learning over time about what would be acceptable in this environment to the average customer for these retailers."
Michael Norton is the Harold M. Brierley Professor of Business Administration at Harvard Business School. His Latest book is "Happy Money, The Science of Smarter Spending." He’s also co-host of the podcast Talking Green, which explores the psychological forces that drive attitudes and decisions around money and investing.