How much do CEOs make compared to average workers? The average American says it is 7 to 1, but that is way, way off. If I said 10 to 1, would that shock you? How about 50 to 1? Certainly, it cannot be more than that, can it? Well, it is, and it’s a lot more. Would you believe it’s more than 300 to 1 on average? In dollars and cents, when we look at the average CEO at a S&P 500 company, they make about $12M while the average worker makes $36,000. That’s 333 to 1.
Okay, but that’s just the way it is, and it’s been like this forever, right? Yes, to a point. The top dog has always made more than the average employee that is true but the gap that was once a trench has become a canyon. An estimate from the Economic Policy Institute says that CEO compensation has grown 1,322% since 1978, whereas the rise in typical worker compensation has been just 18%.
And there’s more. It appears that this morally questionable imbalance, this growing canyon, isn’t just a concern of employees, it also matters to customers.
As evidence of this, the Harvard Business Review has performed some interesting research around customer perceptions of wage inequity and their subsequent actions based on those perceptions. In one significant experiment, one group of people were told the CEO of a company, Walmart, made $24M and their average worker made $24,000—a 1,000 to 1 ratio. Another group was told about another company, Costco, where the CEO made $1.3M to their workers average of $24,000 which is 60 to 1. The participants were then asked how fair they thought the pay scales were and how willing they would be to buy things—in this case towels—from each company. As it turned out, the people were more willing to buy from Costco, the more equitable payers of the two, than from Walmart.
The lesson? As customers become more and more picky about who they buy from, and you look for more ways to differentiate your business from others, think about the equity in your pay scheme. What does it say about your values? Do you look like a selfish wealth creator or a benevolent value creator who considers the well being of their employees and customers? It may matter much more than you think.
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