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Too well paid to be likeable

April 6, 2017

Can the disclosure of how much executives make torpedo a brand?

Can the disclosure of the earnings of executives impact how a company is perceived? You don’t have to have participated in the demonstration against Bombardier’s pay hikes or shared your displeasure on social media to know that this isn’t the kind of exposure that brands want. Whether you disapprove of the hikes or are simply disgusted by the whole thing, for once, there is consensus on this question. But have the earnings of executives become an important-enough conversation topic to influence how brands are regarded?

This aeronautical company—the pride of Quebec—has been losing popularity for two years now: ranked as the 10th more respected company in Quebec in 2014, Bombardier plummeted to 127th in 2016. With this latest debate over pay hikes, we can assume that the nosedive will continue.

The numbers are not what caused the outcry, however. We are all well-accustomed to seeing sky-high salaries for professional athletes, artists and business executives. It wasn’t the considerable (and equally upsetting) job losses in Quebec or how much the government invested in the CSeries program either.

The cause is the massive rise in salaries despite all these factors. It’s the impression that we are paying more taxes to support a company that uses our generosity to spoil its executives. Isn’t that enough to make our local pride wane? A few years ago, Bombardier produced ads that featured Quebers proclaiming with satisfaction, “This is my plane” or “This is my train”. This year, they’ll exclaim, “Those were my taxes!”

Outrageous salaries will always raise a few eyebrows, but the case of the aeronautical giant is not an isolated one. Taking into account inflation, the average earnings of the 100 best-paid CEOs in Canada has doubled in the last 20 years. During that same time, the average salary of regular Canadians has only increased by 9%. Today, our CEOs earn 200 times more than their average employee.

Why do companies agree to pay such high salaries? Because they aspire to attracting the best candidate to lead their company, because many of them are waiting for a saviour… and because these companies never face any consequences for doing so.

If more consumers better understood the gap between executive and employee salaries, would they require companies to be more equitable? In the U.S., the Dodd-Frank Act forces companies to publish their CEO-to-worker ratios. Greater transparency about this financial information could help consumers become more aware.

The disclosure of the pay gap between employers and employees will become obligatory in 2017—if the law survives the new American administration and the Securities and Exchange Commission, which is the federal body that regulates financial markets.

This doesn’t require that the ratio be reflected in the price of consumer goods, but optimists hope that it will put pressure on investors to make companies more accountable for how they remunerate executives. The more cynical among us doubt that there will be any change in consumer behaviour.

And the numbers back this. When asked if they would pay more for products made by companies with a more equitable CEO-to-worker ratio, consumers answered with a resounding affirmative. But these are the same consumers who say they’re ready to pay more for organic or eco-friendly products… but don’t.

The disclosure of this ratio will help companies compare their performance to other companies and within their industries. Less successful companies will have to justify their pay scale in a more transparent way than through vague messages to shareholders.

Will being a company with a more equitable CEO-to-worker ratio serve the brand? Or, on the contrary, will massive executive earnings sink the brand? In the case of Bombardier, the brand took another blow. With all due respect to CEO Alain Bellemare, this goes beyond a communications mis-step. And with disclosure, a growing number of companies will have to reconcile themselves to engaging in this new kind of communication.

Companies that already enjoy great popularity will logically want to post a better CEO-to-worker ratio, for fear of losing their status. However, according to a study by Nader T. Tavassoli at the London Business School, executives demand higher salaries when taking the helm of less popular companies. It’s precisely because a brand is well-loved that it can reduce the gap between executive and employee salaries, and not the other way around.

With its reputation in freefall, will Bombardier be able to boost its executive salaries once more next year? If so, it shouldn’t come as a surprise to anyone.

This article was originally published online in French on L’actualité.

Image from Dezeen