What drives bad press around CEO (over) compensation?
New research from HEC Paris suggests that the media isn’t doing all it can to responsibly cover the issue of CEO (over)compensation.
Mounting public outrage regarding CEO (over) compensation can be attributed to the fact that income inequality has reached a crisis point and demands action. According to research from HEC Paris, however, the media sometimes criticizes the wrong companies for the wrong reasons.
The researchers found that companies are often singled out for criticism based on a seemingly irrelevant reason: their reputation for CSR. HEC Paris’ Georg Wernicke explains why: “Contrasting activities, such as paying a large sum to the CEO and simultaneously engaging in corporate philanthropy, can [result] in perceptions of hypocrisy or greenwashing and thereby spark higher levels of disapproval.” What’s worse, 5% of the companies studied who drew fire from the media for such reasons “had actually been underpaying their CEOs for two consecutive years.”
The researchers’ message isn’t to abandon CSR initiatives out of fear of being seen as hypocritical (CSR is still found to improve firm reputation and performance overall). They simply caution against granting CEO compensation packages that could in any way be portrayed as excessive. When it comes to the media, meanwhile, to protect their legitimacy and drive a fairer distribution of wealth, the researchers urge greater diligence about exposing and criticizing the actual worst offenders.
To go further: “CEO pay and philanthropy: When good intentions attract bad attention” by Georg Wernicke (Knowledge@hec, October 2018)
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