Fat CEO Salaries Tick People Off. So Why Isn't Executive Pay a Marketing Liability?

Those of us old enough to remember the financial meltdown of 2008 might also recall the final, disgraceful chapter of it. It wasn’t just that 9 million people lost their jobs; it was that the financial institutions that had traded all those securities based on subprime mortgages—and then been bailed out by the federal government—proceeded to dole out $20 billion in bonuses to their senior executives. “That is the height of irresponsibility,” President Obama said early in 2009 in a rare moment of public choler. “It is shameful.” Even today, a generation later, the financial-services industry is still dealing with the reputational fallout. A 2019 study conducted by U.S. Banking RepTrak, for example, found that “a lack of consumer confidence in the U.S. banking industry is approaching near-crisis proportions.” But the ill will generated by overpaid executives is hardly limited to Wall Street. Simply put: A growing number of Americans believe that CEOs—regardless of industry—make too much money. How Covid-19 Has Redefined the Ideal Traveler In 2016, researchers from the Stanford Business School interviewed 1,200 consumers. They reported that “CEOs are vastly overpaid, according to most Americans.” More recently, in 2019, a Bequom survey found that 78% of millennial and Gen Z workers thought that the compensation of their companies' CEOs was excessive. Yet the widespread public perception that many CEOs are fat cats who don’t earn their keep also raises a key question that’s rarely asked: If consumers grumble about the bloated salaries of CEOs, does that harm the reputation—or perhaps even the revenues—of the brand paying that salary? In other words, is inflated CEO pay a marketing issue? Tough times, rich execs As the 2008 financial meltdown taught us, few things stoke the popular anger over bloated CEO pay more than a nice, big economic crisis. Over the past two years, the pandemic has surely given us one of those. Which is why a recent study from the nonprofit corporate accountability group As You Sow makes for some eye-popping reading. There is real reputational risk for brands associated with overpaid CEOs, particularly if they are public-facing.Rosanna Landis Weaver, As You Sow AYS used shareholder returns—or the lack thereof—to compile a list of the most overpaid CEOs in corporate America. (The ranking is based on pay packages awarded in the year prior to June 30, 2021.) But the tally is more than just a "who’s who" of corporate moneybags. What sticks out most from an already onerous ranking are those chiefs of brands that suffered severely during the pandemic—some having laid off employees—yet still received their bushel of cash. Take Norwegian Cruise Lines, for example. The company lost $845 million in the third quarter of 2021 and, in January, citing the scourge of omicron, canceled cruises on eight of its vessels. Under water The pandemic wasn’t the pleasure liner’s fault, of course, and even truly inspired leadership couldn’t have made a profit off ships forced to tie up in port. But despite the havoc of Covid-19, CEO Frank Del Rio took home over $36 million, according to AYS. That’s ratio of 1,188:1 to the median salary for a Norwegian employee, which is $30,635. How, then, does Norwegian square its waterlogged fiscals with its CEO pay package? A company spokesperson explained that “it was essential to keep our management team intact to steer our company through the extraordinary impacts of Covid-19, ensure stability in the organization and to ultimately driver our company’s recovery.” Hilton sounded a similar note when it came to explaining the $59,870,639 pay package for CEO Christopher Nassetta. While Hilton is demonstrably climbing out of the pandemic trench—increasing its revenues per available room by 60% in 2021, as Nassetta himself pointed out to analysts during a call last month—its Q4 earnings were still 30% below peak 2019 levels. “2020 was a year like no other,” a Hilton spokesperson told Adweek, explaining that “the outsized impact of the global pandemic on the hospitality industry meant we needed to reassess our approach to executive compensation to ensure we continued to drive performance through an unprecedented period for our industry.” Checking In: Why Kimpton Hotels Made Therapy a Guest Amenity A real reputational risk Both Norwegian and Hilton are essentially saying that tough times demand top leadership—and such leaders don’t come cheap. It’s a boilerplate line that comes from many a corporate PR office. But the argument that CEOs are the costly ferrymen needed to row a company through treacherous waters doesn’t impress Rosanna Landis Weaver, AYS wage justice and executive compensation senior program manager. When it comes to justifying lavish compensation packages, “they say it’s about attracting and retaining talent,” Landis Weaver said. “I don’t believe that.” Not only do many CEOs do a good job for comparatively modest pay, she said, companies might well be paying a price for their pecunious chiefs in the court of public opinion. “There is real reputational risk for brands associated with overpaid CEOs, particularly if they are public-facing,” Landis Weaver said. “Maybe an obscure engineering company won’t have customers that care, but if you are a Disney or a Starbucks, you face a higher level of vulnerability on the issue.” How to tick off your customers Granted, the average person on the street probably doesn’t spend hours of his day thinking about an issue like CEO paychecks. (In fact, the 2016 Stanford study found that Americans pegged the average CEO salary at $1 million, when the figure was actually $9.3 million.) However, executive compensation has become more of a public issue than it used to be. In the last two weeks alone, for example, major media outlets have carried stories about how Ford CEO Jim Farley took home close to $23 million last year, and how Intel CEO Pat Gelsinger’s 2021 earnings of $178.6 million was 1,711 times higher than that of his average employee. And it’s that ratio, Landis Weaver noted, that makes the companies look the worst. “To see Starbucks' CEO’s pay of $20.4 million is one thing,” she said. “To see that the median employee’s pay for the year was $12,935—and that the CEO made as much in one year as 1,579 of his employees—is something else.” Starbucks CEO Kevin Johnson Is Stepping Down After 5 Years The salary-brand disconnect Why, then, are brands not more concerned about CEO pay as a marketing liability? Companies seem to care about every other facet of their public image, so why not this one? There are several likely reasons. Foremost is the issue of relatability—or, as Georgetown University business administration professor Jason Schloetzer terms it, "salience." “Can a typical shopper connect that brand with the corporation that sells that brand? And can they then connect that corporation’s CEO to whether or not they’ve been performing well?” he asked. “The salience of that connection along the way is quite difficult.” In other words, CEO pay is multiple steps removed from your basic shelf-level transaction, making it all the less likely that it will affect a purchase decision. NYU Stern marketing professor Priya Raghubir agrees. "When the cost of the company's management mistakes is felt by the consumer," she said, "then there is a backlash on brand equity." But so long as a CEO's salary isn't making the cost of goods rise, consumers are unlikely change their shopping behaviors or their regard for a brand. Wharton marketing professor Barbara Kahn added that, despite the occasional breathless articles about mammoth CEO salaries, most Americans are already desensitized to them. “Consumers are used to seeing astronomical salaries that people earn who may or may not be worth it,” Kahn said, using as an example the professional athlete who gets an eight-figure paycheck for spending most of the season warming the bench. “You see lots of people with astronomical salaries and you’re used to thinking: ‘Well, I don’t know what makes them worth this while I do real work and I get $10 an hour!’” she said. “We’re used to being in a world where pay for performance isn’t a clear metric anymore.” Celebrities versus CEOs Corporate governance authority Nell Minow, who’s also vice chair of ValueEdge Advisors, doesn’t argue that many prominent public figures make tons of money, but said CEOs are different in terms of accountability. “Of the people in the stratosphere of pay, every other category—actor, rock star, athlete, investment banker—are [held to the standard of] pay for performance,” Minow said. “Athletes get paid a lot, but they make more in endorsements. And when Tiger Woods messes up, he loses that revenue overnight. “CEOs are the only ones who pick the people who set their pay,” Minow continued. “They don’t just pick their directors; they control their access to information and what they get paid as well.” All the same, brands do seem to be more aware that inflated CEO pay is enough of a bad look that it’s worth paying attention to. According to Fortune magazine, 647 companies on the Russell 3000 (an index of the 3,000 largest public companies in America) announced CEO salary cuts during the pandemic—and 512 actually followed through with them. For now, however, it’s probably a stretch to imagine a consumer dumping his favorite brand because he just learned the CEO gets paid too much. As Schloetzer posited, you’d probably have to post the CEO’s pay-to-performance ratio on the price tag of the item for sale. And even then, he said, “I don’t know if that would change things.” In This Ad, Kathryn Hahn Isn’t Just the Captain of a Pirate Ship—She’s the CEO