Higher Executives’ Pay Lead to Maltreatment to Employees

Topic: How higher executives’ pay effect the way they treat employees.
Researchers: Sreedhari Desai (Graduate Research Fellow, Harvard University, US), Arthur Brief (University of Utah, US), and Jennifer George (Professor of Management, Rice University, US)
Year: 2010
Formal Reference: Sreedhari Desai, Arthur Brief, and Jennifer George, “When Executives Rake in Millions: Meanness in Organizations”, IACM 23rd Annual Conference Paper
Main Conclusion: As the disparity between CEOs’ compensation and ordinary workers’ income increases, the former become meaner toward the latter.

Description of Experiment

a. Archival study:

  • Researchers used KLD Company Profiles database. Since 1991, KLD evaluated approximately 650 (US and non-US) firms on key stakeholder issues through publicly available information and interviews with key personnel.  KLD conducts – amongst other things – an annual evaluation of each company on employee relations (through indicators like union relations, fines for health & safety violations, significant reductions workforce in recent years, substantial under-funding of DB pension plans, and other employee relations controversies like lawsuits).
  • Data-set was using 2007 data for 261 companies (for whom a secondary source for executives’ compensation was identified).
  • Analysis show that the higher the level of CEO compensation, the meaner the behavior of the organization toward lower level employees.

b. Laboratory experiment:

  • 62 US undergraduate university students (41 men and 21 women).
  • In Part I students asked to solve anagrams for 5 minutes. They were told that based on their relative performance they will get points and be assigned to the role of an employee or a manager in Parts II and III of the game.
  • :Regardless of anagram task results (and without knowing so), all students received 65 points, were all assigned to a manger role, but they were divided into two groups:
    Group A. students were told their employee got 15 points;Group B. students were told their employee got 60 points.
  • On Part II students in both groups were told that their employee would solve some mazes for 10 minutes and based on performance the organization would make profits.
  • Participants further were told that based on the employee performance and profits to the organization, manager would receive 20% of profits and the employee 10%.
  • The manager would then have to decide whether or not to retain the employee for the 3rd part of the game. If a manager decides to not retain the employee, the experimenter would randomly assign a new employee to the manager.  This new employee then solve mazes and the organization again would make profits.  If the manager decided to retain the employee, the same employee would work for the organization in the 3rd part of the game.
  • Managers were told that employee not retained will not play anymore in the game.
  • After being told that their employee performance in the Part II (the mazes) was average and organization profit was 100 points, managers were asked to decide if to retain the employee.
  • Group B. students decided to retain their employees (in Part II of the game) much more than group A. students did:

Higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers.

When Executives Rake in Millions Meanness in Organizations