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    Consumers Punish Firms that Cut Employee Pay in Response to COVID-19
    30 Aug 2020Working Paper Summaries

    Consumers Punish Firms that Cut Employee Pay in Response to COVID-19

    by Bhavya Mohan, Serena Hagerty, and Michael Norton
    In the wake of COVID-19, firms announced both employee furloughs and (typically small) CEO wage cuts. This research shows that firms’ treatment of employees matters far more to consumers than executive pay cuts.
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    Author Abstract

    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.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: August 2020
    • HBS Working Paper Number: HBS Working Paper #21-020
    • Faculty Unit(s): Marketing
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    Serena Fleming Hagerty
    Serena Fleming Hagerty
    Doctoral Student in Marketing
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    Michael I. Norton
    Michael I. Norton
    Harold M. Brierley Professor of Business Administration
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