Rewarding CEOs...Bad for Business?

If you're an average professional, $80,000 might seem like a decent salary. It's well above--over 35% more--the U.S. median income of $51,939. But if you work at Discovery, where the average compensation is $80,000, your CEO is earning 204 times that. $156 million to be exact. Is it fair? That's debatable. Is it bad for business? In certain ways, absolutely.

There's often a strong correlation between CEO pay and company performance. While Discovery has faltered in recent quarters, it's stock has increased since the CEO took the helm in 2007.  And according to Discovery SEC filings: "This contract rewards Mr. Zaslav for the value he has created and the continued strategic direction he provides and requires sustained performance over time for that award to have value."

While this may seem good for business on the surface--correlating CEO rewards with performance, it may also be hurting the business in ways CEOs, shareholders and stakeholders can't understand.

The Employer Brand Fallout

The increase of public relations on employee, HR and workforce issues is tremendous. It resonates in the news and is strong, shareable content. Glassdoor's recent report on the CEO-worker pay gap was reported in hundreds of publications like Fortune, New York Post, LA Times, Huffington Post, CNBC, Forbes and Fast Company. This is bad news for companies featured like Discovery, Chipotle and CVS Health. And the timing certainly isn't great for Chipotle who is having their national hiring day on September 9.  Our research tells us workers care more than ever about fairness and equality. And they get riled up in focus groups when asked about thorny issues like this. It's flat out bad for the brand.

The Compassion Gap

When you're making over $100 million, even if the bulk of the compensation is in restricted stock, you're living at a level unattainable and unimaginable to your workforce. You're not coming home to a bathroom that needs to be cleaned, or rushing to pick up your child from daycare so you don't have to pay late fees. You're not worried about the lack of medical coverage for a key test or trying to figure out when to schedule the plumber because you can't find a day to work from home. 

Even if you lived an earlier part of your life on meager means, CEOs at this compensation level have a really hard time understanding how the personal issues of the average worker affect his/her life and performance at work. As we wrote about in Harvard Business Review earlier this year, there's a real bottom-line impact to understanding what your average worker cares about and how they live their lives. 

The True Cost

What does this mean for a company's bottom line? Plenty. We know the cost of employee disengagement. And we know the cost of hiring. It's not as easy to quantify as the value of stock shares given to a CEO, but companies would be smart to look for a correlation between news and worker productivity and engagement, and, recruiting metrics like time to fill. We measure this impact on the consumer side so we're naive to ignore it or think it doesn't matter on the workplace side.

It seems so simple to look at how the company is performing and pay the CEO as such. But we're missing out on correlated bottom-line impact and what it means for the brand. 

Susan LaMotte, SPHR is the founder of exaqueo, a workforce consultancy that helps companies build cultures, employer brands and talent strategies. Contact exaqueo to learn more about our employer brand innovation, workforce research and recruiting strategy offerings.

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