Crisis pay cut: Consumers prefer firms that prioritize paying employees over CEO | Hacker News Reader

Crisis pay cut: Consumers prefer firms that prioritize paying employees over CEO

cambridge.org

105 pointsrntn55 comments

The design of the studies is garbage: imaginary intention to make an imaginary purchase of an imaginary headphones from imaginary companies. Participants paid and recruited through mechanical turk.

  > Participants (N = 383; 52% female; age: M = 43.28 years, SD = 14.93) were recruited through an Amazon Mechanical Turk Prime Panel and paid a flat rate for compensation. This study used a 2 (employee type: retail employee vs. CEO) × 2 (salary: paid fully vs. cut fully) between-subject design. Participants were asked to imagine that they were looking to buy a new set of headphones from a well-known retailer.

I bet that many people once they were done with the survey and paid went to Amazon and bought something, and did not care once about the pay of workers or conditions, when making an actual purchase.

Haha, I just scanned for the sample size, I didn’t look at where it was taken from. Truly that is amazing.

This is utterly unsurprising.

By the same token, consider the vehicle market which has seen prices balloon in 2022 due to high demand. Consumers are less tolerant of dealer markups (which enrich a low value-add dealership) versus OEM markups (which ostensibly flow to the manufacturer and its employees).

I find it surprising that people prefer companies that pay their employees poorly as long as the CEO is also paid poorly over companies that pay their employees well and their CEO even better. My assumption would have been that consumers always prefer the employees being paid well over paid poorly.

It's especially surprising because, assuming equal revenue, the shareholders "sitting back and doing nothing" derive greater benefit when everyone is paid poorly. Bias towards retirement stocks that the majority of the population (in the US) hold?

I disagree with your characterization (or I read it wrong). These are pay cuts, so customers prefer those where the cuts fall on CEOs first and greatest. Your assumption that revenues remain constant seems to be one not shared by customers

So, yes, people prefer to patronize companies where the pain is shared regardless of the size of the pain.

I was referring to the referenced earlier study contained within. It wasn't focused on cuts, although it is assumed in this study that the same would hold true in a cutting situation.

My assumption of equal revenue was meant to be across companies. Obviously a company with no money can't pay as well as a company that can print money. But if two companies have equal revenue, but one pays less for its workers, then the net will stay in the company with a disproportionate benefit realized by the shareholders.

I was surprised that consumers favour the shareholders getting rich over the workers, but perhaps that is because the odds are they are shareholders themselves.

I suspect it is a salience effect. If everyone can be paid well, that's just a company doing well. There is no tough decision to be made.

If a company is perceived as reacting to bad finances and leadership makes a show of taking the hit, that's likely to perceived as good leadership - long term thinking, protecting the team, whatever.

But, within that, what's the difference between a company doing well and a company not doing well but leadership reacting to it well? I would say that is good leadership in both cases, but this suggests that consumers show a strong tendency to prefer the latter.

Pay the CEO well and the employees even better.

It's much more competitive than that. Like only 10% of wealth is created, the other 90% is won or maintained. There is such a thing as excessive innovation like telecoms complain about. The focus in on the generated wealth, grow the pie, so that people think they don't have to fight for their piece of their pie. Real estate is a pie. Spheroid not a cylinder, same thing. Tiny slivers and that's all there is. So like if somebody encroaches on your land and tells you to build twice as high a building on what he didn't encroach, you do that? Like it's your fault you don't build pencil buildings? Japanese pencil buildings.

One hand to make and one hand to fight. Everyone must do both.

There is no value add in dealers. At all. Pushy sales people. Add-ons that you don’t need. Giant inventories.

I wish I could build & order my next BMW online. And then get my own financing or BMWs, without having to sit with the finance guy who is going to be pushing a warranty plan and his financing for a kickback.

All that to pay for stuff I don’t need.

Using mechanical turk to test consumer purchasing behavior is a meaningless exercise. Consumers care about price and quality, first and foremost. To fully explain the ethical practices of executive pay vs. employee compensation when someone is buying soap or cat food is not easy.

However what I love about the free market is that everyone can experiment. If you can find competent executives willing to work way under market-rates to sell your soap and cat food as a for-profit charity, I welcome it!

https://www.thefashionlaw.com/visibility-is-central-to-a-suc...

Only, consumers actually care about ethics and that can actually hit your bottom line.

That is an overly simplistic and utterly senseless perspective. The overwhelming majority of consumers could give a sh*t about these things when they're actually shopping for a product. These are the things people care about when being judged by others, not when deciding how to spend their money.

> That is an overly simplistic and utterly senseless perspective.

That's a curious response to an explicit example of consumers not simply optimizing for cost and quality.

Your first sentence is pretty exaggerated (and borders on ad hominem). Regardless, even if I agree with your second sentence, I can still rationally disagree that it has no effect worth considering, either economically, morally, or even just personally. They aren't mutually exclusive, logically.

Maybe I'm in the minority but I don't see any ethical concern with market rate CEO pay.

Perhaps a more generic "value alignment" would better capture both the study du jour and the Nike example.

I think there is a minority but highly poisonous ideology (in that its effect is outsize compared to how many people believe it) that essentially goes "market = ethical". There is certainly some not-unreasonable argument that market rate CEO pay is not unethical, and that version of the argument may be the one in your head. However, I believe the majority of arguments to that effect are unreasonable. I believe that the exact shape of the wealth pyramid, as produced by natural market forces, is one of the great horrors destroying the common person's feelings of satisfaction or even simple happiness - one of those things that is ignored because "personal responsibility", or other oversimplifications you might call the tonal opposite of a platitude. Historically, that pressure is eventually released horrifically. In modern times, I'm not sure what's going to happen, because we have significantly stronger walls on the pressure vessel (mostly a natural outcome, not maliciously designed). E.g. the many little distractions we'd rather take comfort in than engaging in the nightmare of revolution (entertainment, food); for others less fortunate, the all-consuming distraction of just staying above water; the simple distance between the people and the wealthy, and the layers of abstraction in their interactions with each other; the military and police. Have we engineered a perpetual-misery machine, that keeps things just perfectly in balance to avoid an explosion?

I don't care about the wealth pyramid. I care about freedom. If I have skills and a company wants to pay me $XYZ freely for my skills, the government shouldn't be able to arbitrarily cap what I can be paid. Obviously I dislike income taxes as well, but I would rather an income tax than an income-cap.

The poisonous ideology - punishing success - is your own.

From the article you linked:

> That was not the case according to Nike’s chairman and chief executive at the time Phil Knight, who told the New York Times in 1998 that he “truthfully [did not] think that there has been a material impact on Nike sales by the human rights attacks,” and pointed instead, to “the financial crisis in Asia, where the company had been expanding sales aggressively, and its failure to recognize a shifting consumer preference for hiking shoes.”

If executive pay is prioritized over employee retention, prices may drop but quality (or quantity) inevitably suffers.

The problem is that by the time drop in quality exceeds consumer tolerances, the original executives are long gone.

Employees prefer working for those firms too! Perhaps there is a correlation there...

I mean they say this, but let’s say it’s true (this study is small, and this is the kind of question where people “know” how they meant to answer to be a Good Person (tm)), lots of people can think that, but will still go for the best option from an overall consumer view.

E.g I’ve recently being redoing a chunk of my kitchen, and issues with things from Home Depot and Amazon have been handled better in every case. Like I got a dishwasher from home depot that was clearly dropped (and delivered upside down), and they sent ups to pick it up for the return the next day. Similarly Amazon with damaged goods. The smaller firms have been the ones where I had more problems - so I paid more, it took longer, and I had more difficulty getting responses to a few of the missing parts. Every small/local business is like a lottery, and if there are other things involved (like when your contractors are going to be working) that just becomes too risky.

So yeah, I’d prefer a company that lowered CEO pay, but preferring something doesn’t make it a realistic choice. (In a similar vein, I’d prefer to have an electric car, but that’s a lot of money and my current car works, so my current car remains)

I would have liked to say "No shit, Sherlock!".

But then again I didn't have any faith left in consumers so good to know. Thanks for the hopium.

If you scroll down to the details about the studies, you'll see that they just asked consumers what their stated preferences were, rather than observed what their actual behaviour was.

Anyone who's ever priced anything before will tell you this is pointless at best and misleading at worst. We shouldn't spend any more time discussing such a bad study.

As always it depends. At a small startup the CEO may actually be worse off than their employees. As company_size grows the number of CEOs living paycheck to paycheck approaches zero.

That's the least of anyone's concern, though.

If Google's CEO took a big pay cut and gave raises to his employees: no one would switch from iPhone to Android.

You are correct. That certainly will not happen immediately, and not as a direct result of that action.

However, it could theoretically result in employees preferring to work for Google instead of Apple. And employees at Google being happier. And happier employees doing better work. And then Android eventually being significantly better than iOS. And then consumers switching.

Whether that chain of logic pans out in reality, I can't say.

Also if Google's CEO took a big pay cut and distributed the cut to all the employees, they might not even notice it. The CEO is one guy, and there are over 100 thousand employees.

People wildly overestimate the amount that CEO pay has any bearing on employee pay. It's all just emotional appeals to "fairness."

> Also if Google's CEO took a big pay cut and distributed the cut to all the employees, they might not even notice it

Google's CEO distributing his bonus would have worked out to an extra $3,000/each in 2018 (the easiest recent numbers to find). That's assuming that all employees got an even share.

> emotional appeals to "fairness."

There's reasons to want fairness that have nothing to do with emotion.

> There's reasons to want fairness that have nothing to do with emotion.

Such as?

The whole basis of fairness is emotion, mostly rooted in jealousy and envy. It ignores that people have different skills, abilities, intellect, drive, tenacity, etc. and says that everyone deserves the same outcomes.

Fairness does not mean same pay. Maybe it's my ex-USSR background, but fairness involves paying according to skills/abilities/etc. But it's rare that skills/abilities/whatever differs 100x.

Fairness is precisely about putting aside things which would bias one to things which are not related to performance. My experience is people who are used to relying on privilege view fairness unfavorably because the alternative is admitting they don't measure up to others.

This seems like a simple semantic disagreement (and a kind of baffling one, frankly). Particularly cartoonish CEOs might think the word "fair" is code for "everybody in the world gets exactly the same of everything", but the vast majority of people use the word colloquially to include some degree of intuition and rationality and holism (like most words in normal conversation). E.g. almost nobody believes that all human beings should be paid the same salary no matter what they do, yet most people believe that everybody should get "what's fair", for whatever they subjectively believe is fair.

That assumes that a CEO with this bonus incentive removed would perform as well and bring in the profit that enables that $3000 /ea . Perhaps that's correct but that would be quite the claim that demands proof.

I'm no economist but I would indeed be interested in seeing the studies that show CEOs performance is just as good or better when his/her bonus is taken and then redistributed to everyone else. It's certainly an interesting incentive model.

And how, exactly, would you be able to tell?

Isn't the standard measure of CEO performance "did the stock price meet expectations for the quarter"? A measure which has a myriad of different factors far outside the CEO's control affecting it—as well as a number of factors in the CEO's control that have very little to do with the actual health of the company.

Furthermore, it's not at all uncommon for a very good leader to leave (dies, retires, steps down to go do something more fun, forced out by someone who wants to be their successor, whatever), and their successor to inherit a very healthy company with strong fundamentals and good people at various levels...and proceed to do bugger-all for several years and still be hailed as a great leader because the health of a company is very often a trailing indicator of leadership competence.

That's exactly my point. There's no way, I don't think, we can say if we redistributed the CEOs bonus that that $3,000 would still be there. We need some evidence to show the factors leading up to the availability of those $3,000 would still be intact with the bonus incentive removed.

One could make the completely unfounded conjecture that perhaps everyone would make $3,000 LESS if the CEO didn't have a bonus incentive. Now that would not be supported by any facts, but then again neither is the suggestion you can just nix the CEO bonus incentive and expect the performance to support that $3000/ea extra money still being there. Remember wealth doesn't have to be zero-sum.

I have no idea why my claim would demand proof. In fact, I'll start by demanding proof from you that CEO performance is in any way correlated to compensation.

If Google felt it needed to save, say, $500k, and it did so by firing 10 people who each made $50k, that would be devastating to those 10 people.

On the other hand, if it did so by reducing the collective paychecks of the C-suite by $500k, they definitely wouldn't even notice.

Obviously this doesn't scale infinitely, but it's not about whether you can make 100k people wealthy by giving them all of Pichai's money. It's about what's more important to Google when it believes it needs to spend less: keeping its executives' compensation from dropping by even a penny, despite the fact that any of them could probably retire in comparative luxury right now, or treating its employees with dignity and respect.

Once Pichai's paycheck is no higher than, say, 3-5x the company median, then come back and say you actually need to start laying people off.

If Google CEO Sundar Pichai split his entire 2021 $6,322,599 [1] compensation among their 156,000 employees [2], each would get ~$40.

If he split his entire stock worth of $280M among them they'd each get under $2000.

Not life changing when the median pay at Alphabet is already ~295k.

So the massive CEO pay, even if completely taken away and given to employees, does not change incomes much at all.

[1] https://www1.salary.com/ALPHABET-INC-Executive-Salaries.html

[2] https://www.business-standard.com/article/international/alph...

low-relevance scenario - there are hundreds of thousands of companies serving consumers, with millions of employees, across the Western system. The vastly disproportional reward of C-Suite versus employees since the 1990s is very well documented. Google Inc is not any of those companies, and their economics do not apply.

I was replying to the person above me that specifically mentioned the results of Google CEO giving money to employees, so it was high relevance.

As to the "since the 1990s," all of those are quite oddly cherry picked. The actual facts on CEO pay in those stories forgets that actual CEO pay is the following: in May 2021, there were 200,480 CEOs, with mean annual wages of $213,020 [1]. Mean annual pay across all workers is $58,260 [2].

So, if you were honest about understanding

>there are hundreds of thousands of companies serving consumers

all these companies, then your claim is wrong. CEOs across these hundreds of thousands of companies make less than 4x the median wage, which I just demonstrated.

To get the ridiculous numbers people rage over, that you're likely thinking apply to CEOs in general (and certainly not the "hundreds of thousands of companies" that you mention), you must only take a tiny handful of top paid CEOs (who change positions from year to year as pay bonuses and such vest, making it yet more bad stats, but good for headlines) and compare this tiny fraction to all workers (with annual mean pay of $58260[2]).

Why not be fair and compare the top 0.01% (around 20 of them as is usual in the articles that you claim are "very well documented") of highest paid CEOs to the top 0.01% of highest paid workers? Because that won't generate enough outrage. Yet it's vastly a better metric, statistically defensible.

If someone did this type of shoddy comparison on nearly any other topic people would rightfully call foul for bad statistics.

As a good example, comparing the wages of all CEOs ($200K) to the top tiny fraction of workers (say, top silicon valley programmers for example, all well over $400k), would make the headline that "Workers earn over twice what CEOs do!". And of course you would (and should) call this dishonest. Because comparing outliers of one set to the median of another is dishonest.

So why would you accept the same bad reasoning when it suits your world view?

[1] https://www.bls.gov/oes/current/oes111011.htm

[2] https://www.bls.gov/oes/current/oes_nat.htm

most C-suite compensation is not in direct salary

this topic relates to total compensation, overall

The numbers include all that. Read the BLS methodology and you'll find it clearly explained. The Google CEO I listed is the same, as you can check in SEC filings.

Please don't make claims without checking if it's true. It wastes time.

Again, do you find it reasonable to compare a tiny fraction of highest paid CEO salaries to all worker salaries as a valid comparison?

Sundar Pichai is just one of many c suites and senior management.

If you transfer Total Compey of C suites and senior management to Low level FTEs, here would be a significant difference

Feel free to provide the math, because it's not much at all. C suite pay drops rapidly as you move past a tiny few people. You can get all the data, do the math, then you'll be surprised :)

This is unsurprising considering majority of the population struggles with pay and even if they don’t, have struggled at some point in life. The problem though, is that often, this information is not available at the time of purchase to influence your decisions. When you’re buying a can of beans, you know nothing about how the company treats your employees to be able to make an impact in your behavior regardless of your opinions.

Consumers also prefer if they get their shit for free. See how long your business lasts if you do that.

Satisfying the consumer's every preference is not evidence the consumer, the employee, or the business will be served in the long run.

What on earth does this comment have to do with the post?

"consumers prefer firms that prioritize paying employees over CEO"

>Satisfying the consumer's every preference is not evidence the consumer, the employee, or the business will be served in the long run.

You've only quoted the article title and your own post (which seems condescending). You haven't explained why this particular consumer preference is more akin to "getting shit for free" (i.e. not worth consideration) than other consumer preferences, many of course are very much worth considering. Nor have you given some indication of why the opinion you're trying to get out is worthy of such a hostile tone.

>You haven't explained why this particular consumer preference is more akin to "getting shit for free" (i.e. not worth consideration) than other consumer preference)

This would be a straw man. I never claimed that this particular preference is the same as 'getting free shit.' I merely show a customer preference isn't evidence of benefit for the employee or company in the long run.

The statement was made to present that mere customer preference is not sufficient to show that the employee, customer, or company will be served in the long run. Whatever emotion you feel ('condescending' / 'hostile') you can talk to your therapist about; I'm not going to address your perceptions of hostility.

Quite a bit. Some wealthy consumers may be privileged enough to be able to pay more for goods from a company that pays employees more. But I feel most consumers want their product for the least amount of cost (sometimes out of necessity) and don’t have time nor care about internal pay structures at company.

This mentions the phrase "positive consumer reactions" but it's not clear what that means. Are they asked about their sentiments to the company? If so, this is meaningless. When asked, people virtue signal what they'd like others to believe about them.

The true test is consumer behaviour and here there are legion examples of consumers basing their purchasing behaviour solely on lowest headline price. I mean the airline industry is a case study of this. The only thing that matters is the advertised seat price. Checked bags, which were once free/included, are now an extra to lower the advertised price. Air travel largely sucks because of consumer preferences.

There are two lessons I'd like people to take away from this:

1. You can't rely on companies to police themselves be it based on consumer sentiment or anything else. This is the why libertarianism is so laughably flawed. Markets rely on government action and restrictions; and

2. Consumer sentiment or even consumer behaviour is not an effective way to police company behaviour because everything is so inextricably intertwined. Take the recently averted rail strike. This was to give essential workers paid sick leave where taking unpaid sick leave could lead to consequences to their job. What action can consumers take to communicate this to the companies involved?

corporate leaders prefer to implement policies that benefit corporate leaders.

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