Plenty of studies have shown that when CEOs get insanely big paychecks, it doesn’t pay off in terms of performance — in short, it’s bad for shareholders. Now comes a study from Desai, Brief, and George that shows it’s bad for employees too.
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. We present findings from two studies—an archival study and a laboratory experiment—that show that increasing wage disparity results in executives behaving meanly toward those lower down the hierarchy.
Using 2007 data from Kinder, Lydenberg, Domini & Co. (KLD) Company Profiles, a database of 650 firms that “is currently being used by approximately 150 investment firms to evaluate stakeholder performance for social choice funds,” they analyzed how “mean” CEOs were. What do they mean by “mean”? Bad union relations, substantial fines/penalties for willfully violating employee health and safety standards, mass layoffs, and substantially underfunding pensions or inadequate retirement benefits. Controlling for company size, age, performance, risk, and industry type, they found the following correlation:
the higher the level of CEO compensation, the meaner the behavior of the organization toward lower level participants
They followed up with a lab experiment to try to show that compensation could actually be driving “means” behavior.
You might say, this is a big surprise? You also might point out that many folks — including people who aren’t assholes — wouldn’t buy a definition of “mean” that includes mass layoffs and poor union relations. But it’s still an entertaining study.
What I found more interesting was the paper’s review of the literature on power and behavior. For example:
Recent research on nonconscious processes has documented that people with high power are more likely to engage in automatic processing of social information as compared to those with less power, who are more likely to engage in careful, systematic processing of information (Keltner, Gruenfeld, & Anderson, 2003).
Similarly, evidence for what you already knew if you’ve ever worked for a boss like this:
Stereotyping subordinates and thinking of them as being less capable and less human justifies existing power differentials and helps minimize threats to power roles. Actively denigrating subordinates can then serve to remind other employees who is in power. Fast and Chen (2009) found that such aggressive tendencies are exacerbated when the perception of power is coupled with a perception of being incompetent, when the ego of the power-holder is likely to feel threatened.
Dilbertonomics, anyone?
