Massive paydays for chief executives, at least as designed, are supposed to reward great performance for investors. But when it comes to what their workers think of their performance, the highest-paid CEOs actually tend to get the worst ratings from employees.
That's according to a statistical analysis released last week by Glassdoor, the careers website. Each year, it produces a list of the highest-rated CEOs, based on employee reviews of companies on Glassdoor. In the new report, it compared those ratings with various external sources — data on CEO pay, tenure, profitability and the like — at more than 800 large publicly traded companies to try to see what might help interpret employees' views on their company's brass. Glassdoor did not identify individual CEOs or companies.
"We'd never really dug into what factors explain those differences," said Andrew Chamberlain, Glassdoor's chief economist.
One of the clearest findings from the analysis — besides the link between a highly rated corporate culture and a highly rated CEO — is that especially high CEO pay didn't predict better approval ratings by employees, but lower ones.
"No matter how you look at the data, we found a negative link between CEO pay and CEO approval ratings," the report said.
Glassdoor started by plotting CEO approval ratings against their pay, measured as a percentage of company assets in order to account for size variation between companies. Employee ratings are at their highest among the few CEOs, often founders sitting on piles of company stock, who take home next to nothing on an annual basis. The scores then dip initially, rise slightly toward the median, and then fall off at a much greater pace as the paydays become more extreme.
Then, Glassdoor's researchers controlled for other factors, such as the company's financial performance, CEO demographics and how the culture was rated by employees on Glassdoor (responses to questions about things like their overall satisfaction, sense of career opportunities and opinion on their own pay and benefits). After doing so, researchers still saw a clear link between the lowest approval ratings and the highest-paid leaders, though the effect was lessened in companies that also had a good corporate culture.
So what explains their finding? Could it simply show that companies that dole out exorbitant CEO pay — often places with poor corporate governance or where savior CEOs have been lured in to right the ship — are also bad places to work?
Chamberlain doesn't think so. Even though some studies have shown that people are pretty clueless about how much CEOs actually make, he says they are probably clued in to whether their top boss is making more than he or she is worth. "My take is people are paying attention," he says. High CEO pay, he believes, "affects their perception of CEO quality. You can't command high CEO pay while letting the culture of the company languish. … They will know if it's very large or if it's reasonable."
That trend could continue with a new SEC regulation set to take effect next year. It will require most publicly traded companies to disclose the ratio between the CEO's compensation and the pay of the company's median worker, drawing even more attention to the gap between the two and the size of the payday at the top.
Glassdoor's report looked for other factors, beyond corporate culture and CEO pay, that could reveal patterns about how employees rated their CEO. Chief executives who led more profitable companies understandably got better reviews from employees, and those who were founders, logically, were better liked than hired guns. Yet demographics like gender, age, tenure and education didn't have much impact, on the whole.
The report also broke down Glassdoor's CEO ratings by industry for the first time, showing the most approving employees tend to be in the real estate, construction and information technology industries, while employees in industries such as media, mining and manufacturing tended to think much less of the person at the helm. The least approving bunch? Retail employees, where the average approval rating was just 61 percent.