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

44 Pages Posted: 28 May 2015

See all articles by Bhavya Mohan

Bhavya Mohan

University of San Francisco

Michael I. Norton

Harvard Business School - Marketing Unit

Rohit Deshpande

Harvard Business School - Marketing Unit

Date Written: May 27, 2015

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 (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).

Keywords: pay ratio, wage fairness, purchase intention, customers, financial disclosure

Suggested Citation

Mohan, Bhavya and Norton, Michael I. and Deshpande, Rohit, Paying Up for Fair Pay: Consumers Prefer Firms with Lower CEO-to-Worker Pay Ratios (May 27, 2015). Harvard Business School Marketing Unit Working Paper No. 15-091. Available at SSRN: https://ssrn.com/abstract=2611289 or http://dx.doi.org/10.2139/ssrn.2611289

Bhavya Mohan

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

Michael I. Norton (Contact Author)

Harvard Business School - Marketing Unit ( email )

Soldiers Field
Boston, MA 02163
United States

Rohit Deshpande

Harvard Business School - Marketing Unit ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-5449 (Phone)
617-496-5853 (Fax)

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