Top Brands, Lower Salaries: Study

Nader Tavassoli of London Business School. Courtesy photo

What’s in a name? Quite a bit according to some recent research coming out of London Business School: CEOs were willing to take a 12% salary reduction to spend time at a well-known company. Younger executives were even more likely to take significant pay cuts believing a strong brand name on their resume would lead to bigger returns down the road, the researchers found.

LBS marketing professor and guru Nader Tavassoli led a team of researchers to explore a hypothesis he’s been stewing over for about two decades. When he was entering the job market in the ’90s he was juggling several offers—one from then top-ranked MIT Sloan School of Management. After an uncomfortable and unsuccessful negotiation conversation, Tavassoli took a 30% salary reduction to work at Sloan. After all, it was the best.

Tavassoli began looking at salaries of his colleagues over the years and realized it was only the “secondary schools” that competed with salaries. “The top schools didn’t have to do that,” he claims. And so Tavassoli gathered a team of researchers to see if the same happened outside of academia. Their research suggests it does.

STRONG BRANDS CAN ‘LOWER THE COMPENSATION’ NEW EMPLOYEES ARE WILLING TO TAKE

The LBS team looked at salary amounts from 2000 to 2010 for more than 2,700 executives – 495 of them CEOs – at top companies. In all, the team examined more than 10,000 salary data points and crunched the data against Young & Rubicam’s Brand Asset Valuator (BAV) Model for brand strength. According to the study, the data from the model is “derived from the world’s largest study of consumer attitudes, beliefs, familiarity, and evaluation of different product brands.”

The model combines data on the “four brand pillars” – brand knowledge, esteem, differentiation, and relevance – and spits out “single brand asset measures.” According to the report, “brand strength negatively impacts pay and further lowers the total pay for CEOs and younger executives.” In other words, “firms with strong brands pay their top executives less than other firms, and … this effect is stronger for CEOs and for younger executives.”

The research suggests with strong brand power and marketing efforts toward recruitment of employees, companies should be able to hire better talent for less. “Our research shows that a strong brand can do more than help recruit; it can go as far as to lower the compensation that new recruits are willing to take,” the report reads.

So Tavassoli has created a MOOC to teach the methods. Specifically, the course examines “the employee-based view of brand equity,” which according to the report “emphasizes that strong brands can enhance earnings through cost reductions, making it possible for firms to employ key personnel more cheaply.”

In an interview with Poets&Quants, Tavassoli sheds more light on his research, gaps, and opportunities the research has identified, and what to expect in his MOOC.