Hilton College Study Finds Higher Customer Loyalty to Companies That Cut CEO Pay – Not Jobs – During COVID Pandemic

A recent study conducted by Tiffany Legendre, an associate professor at the University of Houston's Hilton College of Global Hospitality Leadership, has revealed that companies that prioritize employee well-being over profits during times of crisis, such as the COVID-19 pandemic, can cultivate significant brand loyalty and future business among customers with high ethical ideals.

The study, which was published in Cornell Hospitality Quarterly, highlights the importance of companies exhibiting care and empathy towards their employees in times of crisis. According to Legendre, companies that took measures to protect their frontline employees' jobs rather than focusing on executive compensation were highly appreciated by ethics-minded customers. She stated, "They took a pay cut instead of cutting jobs."

By choosing to reduce executive pay instead of resorting to layoffs or furloughs, companies were able to garner support from customers and strengthen brand loyalty. This, in turn, increased the likelihood of planned future purchasing and potentially expanded their customer base.

However, the study also found that altruistic efforts by companies did not yield the same positive results among customers with lower ethical ideals. Legendre explained that these customers were more understanding of companies that opted for job cuts over alternative cost-cutting measures during times of crisis beyond their control, like the COVID-19 pandemic.

Legendre further emphasized that the findings of the study align with the notion that "heroes rise in tough times." Consumers tend to evaluate corporate efforts to protect employees more favorably due to the challenges they endure and overcome. The study underscores the importance of businesses considering both the short-term and long-term consequences of their actions.

"We're not saying companies should fire the CEO at the first sign of crisis, or cut the CEO's salary immediately," Legendre clarified. "But when you're looking at cost-cutting strategies, letting go of employees as a first line of defense may backfire, especially when a competitor may do the opposite. They look like the hero, and you look like the villain."

In conclusion, the study conducted by Tiffany Legendre at the Hilton College of Global Hospitality Leadership highlights the significance of companies prioritizing employee well-being over profits during times of crisis. By choosing to cut CEO pay instead of jobs, businesses can cultivate higher customer loyalty and future business among customers with high ethical ideals. However, it is essential for companies to consider the varying ethical values of their customer base when implementing such strategies. Ultimately, the study emphasizes the importance of businesses making informed decisions that balance short-term and long-term consequences.