Heads Up, Retailers: Consumers Care About Fair Pay

Americans think about more than cheap prices when making a purchasing decision.

A new study by Harvard Business School revealed that many consumers choose to patronize retailers that pay their workers well and keep their CEO’s salary in check.

In order to win favor with American consumers, a company with a high CEO-to-worker pay ratio must offer a 50 percent discount over a retailer who is charging full price but has a lower pay ratio, according to a press release on the study.

“The perception of wage fairness affects purchasing intentions,” said Bhavya Mohan, a doctoral student in the marketing unit at the business school who co-authored the paper.

An international survey found that consumers believe the ideal CEO-to-worker salary ratio is 4.6:1. However, the average ratio among S&P 500 companies is 373:1, the press release said.

Wow. In 1980, CEOs earned about 42 times more than their typical worker.

Although consumers like to shop at retailers with lower CEO-to-worker pay ratios, most companies don’t readily disclose that information. But that could soon change.

The Securities and Exchange Commission is considering legislation for pay-ratio disclosure that would require all public companies to disclose its chief executive’s annual salary, as well as the median salary of its employees, and the ratio of one to the other.

The SEC has been toying with the disclosure rule for the past few years. Now a vote on the proposed legislation, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, could come as early as this week, The Wall Street Journal reports.

Many corporations, as well as Republican lawmakers, stand firmly opposed to the pay-ratio rule. They argue that it will be costly to businesses and is little more than a means to shame some chief executives for their high pay.

Regardless of when (or if) the pay-ratio rule is enacted, it could pay off for companies that disclose the information.

“Even if pay ratio disclosure does not become legally mandated, our results suggest that firms with low pay ratios relative to competitors may wish to begin to disclose this information voluntarily, as a means of garnering favorable consumer perceptions,” concluded Harvard’s researchers.

Check out “Fast-Food CEOs Paid 1,000 Times More Than Their Workers.”

For more information on Harvard’s “Paying Up for Fair Pay” study, click here.

Are you more likely to frequent a retailer that pays its employees well and has a low CEO-to-worker pay ratio? Share your comments below or on our Facebook page.