High CEO-to-worker pay ratios negatively impact consumer and employee perceptions of companies.

Abstract CEO pay is at record levels and may affect more than just company bankrolls. Across five studies, we measured consumer (Studies 1 & 2) and employee (Studies 3a & 4) perceptions about a hypothetical company described as having a high (350:1) or low (25:1) CEO-to-worker pay ratio. People indicated being less likely to purchase products and want a job from high-ratio (vs. low-ratio) companies (Studies 1 & 2). Further, global impressions of high-ratio companies were more negative, and these companies were seen as less employee oriented, though not less innovative by both consumers (Studies 1 & 2) and employees (Study 3a), even when controlling for individual compensation levels (Study 3a). Additional results support the possibility that perceived ratio fairness mediated the link between ratio and these judgments (Studies 2 & 3a). Further, using real-world employee ratings, Study 3b found that CEO-to-worker pay ratios are negatively correlated with employee ratings of work-life balance and compensation—findings that held controlling for company size and profits. Finally, we found that the salience of CEO responsibilities moderated the link between CEO ratio and employee perceptions by improving negative perceptions of high-ratio companies (Study 4). Implications and important future directions are discussed. (197 words). Highlights • High pay ratios negatively affect company impressions and perceptions of employee welfare. • High pay ratios additionally negatively affect buying behavior and job interest. • Perceptions of pay ratio fairness may explain how pay ratios affect views of companies. • Negative perceptions of high pay ratios are mitigated by salience of CEO responsibilities. [ABSTRACT FROM AUTHOR]