Four experiments examine the impact of a firm deciding to no longer pay salaries for executives versus employees on consumer behavior, particularly in the context of the COVID-19 pandemic. Study 1 explores the effect of announcing either pay cessations or continued pay for either CEO or employees, and shows that firms’ commitment to maintaining employee pay leads to the most positive consumer reactions. Study 2 examines the effects of simultaneously announcing employee and CEO pay cessations: consumers respond most positively to firms prioritizing employee pay, regardless of their strategy for CEO pay. Moreover, these positive perceptions are mediated by perceptions of financial pain to employees, more than perceptions of CEO-to-worker pay ratio fairness. Study 3, using an incentive-compatible design, shows that firms’ commitment to paying employees their full wages matters more to consumers than cuts to executive pay, even when those executive pay cuts lead to a lower CEO-to-worker pay ratio. Study 4 tests our account in a non-COVID-19 context, and shows that consumers continue to react favorably to firms that maintain employee pay, but when loss is less salient, consumers prioritize cutting CEO pay and lowering the CEO-to-worker pay ratio. We discuss the implications of our results for firms and policymakers during economic crises.

In recent years, the US Securities and Exchange Commission (SEC) implemented section 953(b) of the Dodd-Frank Act. Starting in 2018, this act requires public companies in the United States to disclose the ratio of CEO pay compensation relative to the median compensation of its' employees. The resulting increase in transparency surrounding CEO pay has allowed the American public to form perceptions about companies and the amount of compensation their CEOs receive. Absent from the emerging stream of research on consumers' evaluation of CEO compensation is the potential for CEO pay to influence CSR perceptions. In this research, we propose CEO pay ratio as a novel driver of consumers' CSR evaluations. Despite the seemingly unrelated nature of CEO pay and a firm's CSR reputation, we find evidence in a pilot study (n = 105) using Fortune 500 CEO pay ratio data as the stimulus, that firms with a high CEO pay ratio lead to lower CSR evaluations relative to organizations with a low CEO pay ratio. In a follow-up study, participants were recruited using Facebook advertisements (n = 196). Once again, a significantly higher proportion of respondents deemed firms led by CEO's with a lower (versus higher) pay ratio to be more socially responsible. Finally, in our third study (n = 101), we examine the process through which CEO pay ratio influences consumers' CSR evaluations. In support of our proposed model, we find that CEO pay impacts CSR evaluations through serial mediation, whereby higher CEO pay diminishes consumers attitude toward the firm which in turn leads to more firm-serving motivations and ultimately, lower CSR evaluations. For managers, the increase in transparency following the passing of the Dodd-Frank act likely introduces uncertainty about how consumers evaluate their company's compensation structure. By exploring the intersection between CEO pay and corporate social responsibility, we shed light on the potential for consumers to employ CEO pay as a diagnostic cue when assessing the organization's CSR reputation.

We document a unique driver of consumer behavior: the public disclosure of a firm’s gender pay gap. Four experiments provide causal evidence that when firms are revealed to have gender pay gaps, consumers are less willing to pay for their goods, a reaction driven by consumer perceptions of unfairness. Unlike reactions to CEO‐to‐worker wage gaps, this effect varies by consumers’ gender: Compared to men, women show larger decreases in purchase intentions toward firms with gender pay gaps. Social media data, from before and after the United Kingdom legally mandated many firms to disclose their gender pay gaps, further demonstrate that gender pay gaps correlate with negative consumer reactions; once again, women are more likely than men to express negative sentiments online in response to pay gap‐related topics. Although we show that firms consumers will punish firms with their wallets, we also observe boundary conditions: When decisions incur a sufficient cost to the self—such as when needing a ride‐share when rain is very likely—the negative effects of gender gap disclosure are attenuated.

Two experiments, including one incentive compatible study, examine the impact of cutting pay for executives versus employees in response to COVID-19 on consumer behavior. Study 1 explores the effect of announcing cuts or no cuts to CEO and employee pay, and shows that firms' commitment to paying employees their full wages leads to the most positive consumer reactions. Study 2 further examines the effects of announcing employee and CEO pay cuts: though announcing CEO pay cuts in tandem with employee pay cuts can help mitigate the negative effects of employee pay cuts, consumers respond most positively to firms which prioritize paying employees regardless of their strategy for CEO pay. These positive perceptions are mediated by perceptions of financial pain to employees. We discuss the implications of our results for firms and policy-makers during economic crises.

Having the exact same compensation for all people, particularly in market-driven capitalistic societies, is a challenging prospect that would be nearly impossible to achieve. However, this chapter argues that such societies would benefit from actively working to lessen the gap between those who are paid the most and those who are paid the least. This chapter focuses on one measure of global policy interest—CEO-to-worker pay ratios. First, the chapter discusses how the rise in CEO pay compared with that of the average worker has directly contributed to increased income inequality. Next, the chapter explores what is considered by different societies to be a “fair” CEO-to-worker pay ratio. Finally, the chapter discusses recent policy initiatives to both disclose and cap pay ratios around the world.

We investigate when and why the disclosure of cost information by firms can increase consumers’ purchase interest.

We document a novel driver of consumer behavior: pay ratio disclosure. Swiss corporation performance data gathered during a legally mandated pay ratio referendum reveals that salient high pay ratios are associated with decreased firm sales (Pilot Study). An incentive‐compatible field experiment shows that, when ratios are revealed, consumers avoid firms with high ratios relative to competitors (Study 1). Finally, the effect of high pay ratios also depends on consumers’ political ideology: Democrats and Independents show decreased purchase intentions for products sold by firms with high ratios, whereas Republicans are unaffected (Study 2).

Prior research examining consumer expectations of equity and price fairness has not addressed wage fairness, as measured by a firm’s pay ratio. Pending legislation will require American public companies to disclose the pay ratio of CEO wage to the average employee’s wage. Our six studies show that pay ratio disclosure affects purchase intention of consumers via perceptions of wage fairness. The disclosure of a retailer’s high pay ratio (e.g., 1000 to 1) reduces purchase intention relative to firms with lower ratios (e.g., 5 to 1 or 60 to 1, Studies 1A, 1B, and 1C). Lower pay ratios improve consumer perceptions across a range of products at different price points (Study 2A and 2B), increase consumer ratings of both firm warmth and firm competence (Study 3), and enhance perceptions of Democrats and Independents without alienating Republican consumers (Study 4). A firm with a high ratio must offer a 50% price discount to garner as favorable consumer impressions as a firm that charges full price but features a lower ratio (Study 5).

Marketing offers that are framed as a “percentage change†in consumer cost vs. benefit can have highly non-linear impacts in terms of actual value for consumers. Even though two offers might appear identical, we show that consumers are better off choosing the offer framed as a percentage cost change over one framed as the opposite percentage benefit change, regardless of whether the net result is a gain (e.g., 50% less cost is better than 50% more benefit) or a loss (e.g., 50% less benefit is worse than 50% more cost) and regardless of whether costs or benefits are in the nominator or denominator of the standard rate (cost/benefit or benefit/cost). Three lab studies and one field experiment show that a majority of consumers (and particularly those with low numeracy) fail to accurately recognize the superiority of percentage cost changes over percentage benefit changes across various tasks and contexts. Even highly numerate consumers are prone to error. However, the provision of salient standard rates can reduce consumer error.