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    Paying Up for Fair Pay: Consumers Prefer Firms with Lower CEO-to-Worker Pay Ratios
    16 Jun 2015Working Paper Summaries

    Paying Up for Fair Pay: Consumers Prefer Firms with Lower CEO-to-Worker Pay Ratios

    by Bhavya Mohan, Michael I. Norton and Rohit Deshpandé
    The pay ratio of CEOs to average workers has long been a question of interest to both employees and investors. It also matters to consumers, as shown by new research conducted by the authors of this paper. A firm with a high (1000 to 1) ratio needs to offer a 50 percent discount in order to garner as favorable consumer impressions as a firm with a low (5 to 1) pay ratio. Even if pay ratio disclosure does not become legally mandated, these results suggest that firms with low pay ratios relative to competitors may wish to begin to disclose this information voluntarily.
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    Author Abstract

    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 (Studies 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 consumer impressions as favorable as a firm that charges full price but features a lower ratio (Study 5).

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: May 2015
    • HBS Working Paper Number: 15-091
    • Faculty Unit(s): Marketing
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    Rohit Deshpande
    Rohit Deshpande
    Baker Foundation Professor
    Sebastian S. Kresge Professor of Marketing, Emeritus
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    Michael I. Norton
    Michael I. Norton
    Harold M. Brierley Professor of Business Administration
    Unit Head, Negotiation, Organizations & Markets
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