Chief executive officers are prepared to take a substantial pay cut to work for top well-known brands, according to research from a London Business School academic.

 

A team led by Nader Tavassoli, professor of Marketing, London Business School, compared compensation figures of 2,717 US senior executives, with the brand strength of their firms’ leading products over a 10-year period (from 2000 to 2010).

 

The sample used combined executive pay data from Computstat’s ExecuComp and brand strength figures from BAV Consulting’s Brand Asset Valuator (BAV) as well as other sources.

 

CEOs were prepared to take a 12 per cent pay cut, equivalent to an average of $1.3 million per year, in order to work for top brands, according to research looking at more than 10,000 compensation-brand observations. 

 

Tavassoli et al argue that the higher the perceived strength of identification between the brand and executive, the greater the executive’s willingness to accept lower pay. 

 

As CEOs are the most prominent members of an organisation, the academics found the negative effect of brand strength on executive pay is strongest for the CEO compared with other executives.

 

While existing, historical research has largely focused on how brands win customers, this research instead argued that looking purely at customer-based outcomes may offer an incomplete account of brand value and underestimates brands’ true contributions to the firm. This is because firms not only compete for customers but also for employees.

 

“Strong brands can provide a competitive edge when negotiating with prospective employees. A well regarded brand can do more than just helping to recruit the best leadership talent – with pay accounting for the largest cost in many organisations, it can also benefit the bottom-line by lowering payroll. HR teams should therefore leverage brand equity as much as they would more-traditional benefits," said Tavassoli.

 

The research also contributed to the highly charged debate around the ever-rising levels of executive pay by highlighting that an inherently marketing-based approach that enables firms to self-regulate executive pay by investing in strong brands, said the research.

 

“We believe that if CEOs are prepared to take a salary cut for the privilege of leading a top brand, pay levels can be grounded, to some extent,” Tavassoli added.

 

The research also found that younger executives were more likely than older executives to take a salary-hit in order to work for a strong brand because they serve as a signal about an executive’s unobserved qualities and can boost résumé power, the research found.

 

Firstly, younger executives have fewer building blocks to define their identity which makes their equity transfer from their current employer particularly valuable. They are therefore willing to invest in their identity because future employers may rely on the brand association as a credible indicator of human capital. 

 

As younger executives have long careers ahead of them, they are likely to have greater opportunities to leverage this equity for social or economic gains.

 

“Younger executives should value brand equity transfers more than older executives when looking at their careers and negotiate their salaires accordingly”, Tavassoli concluded.

 

Prof Tavassoli will lead the first branding MOOC (Massive Open Online Course) on October 7, where he will talk about innovative take on brands and branding, where brands are built by people and not advertisements. 

 

This course has been designed for a broad audience of marketing and non-marketing professionals, in particular human resources and finance but extending to all employees who need to understand their critical role in delivering on the brand promise. - TradeArabia News Service