What was the genesis of the idea to research this topic?
The idea actually came when I was on the job market and I had several offers. One of them was from MIT, the Sloan School of Management, which at that point was ranked No. 1 by the U.S. News & World Report. I remember sitting across the table from the associate dean of faculty, Dick Schmalensee, who later became the dean, and I was armed with an Economist cost of living report and comparisons of salaries, and tried to convince Dick that accepting the MIT offer meant a 30% discount in terms of salary. And he just stared at me. And after a very, very painful silence, he said, ‘Was there a question?’ At which point I said, ‘Do you have a pen because I figured I should sign the contract as quickly as possible.’
So it was the realization then that MIT’s not competing on salaries. It’s not like they paid little, but they didn’t have to pay at the top. Over the years, I kept looking at these higher salary offers made in our field and it was typically the secondary schools who competed on salaries. The top schools didn’t have to do that. I mentioned that some years ago to one of my colleagues, Rajesh Chandy, who is my co-author and does research on COs, and he challenged my idea and said, surely this won’t work for COs. And then along with the third author, Alina Sorescu, we investigated this with thousands of data points on fields and other executives.
What were the biggest surprises and important takeaways from the research?
The one that’s kind of obvious in hindsight but interestingly, nobody really acts on this when they think of returns to brands, is that strong brands pay less. The fact that younger ones (accept this) is about resume power. They have a longer career ahead of themselves so they can cash in longer. We find that in many fields, they take less pay at top brands but it gives them more pay in their next job. So for a subset of them, we could find that. And that’s kind of news in some sense, but also Deloitte just this month, announced that they would stop looking at the schools the applicants graduated from because they didn’t want to be influenced by the brand power of the Oxbridge’s of the U.K. or the Ivy Leagues in the U.S.
Maybe the biggest surprise for us was that the CO took the biggest cut. And that makes sense when you think of them as the public face of the company and that the brand really becomes one in the same. That’s the VW story, where the leader had to resign basically because whether they knew it or not, they are responsible for the behavior. When a brand becomes part of the identity, the value that brand has to you is much bigger. Unlike clothing, which you can wear many brands, you only work for one company.
Why do you think younger employees were more willing to take a pay cut?
There are two things. One is that for them, less is known about them. Because they have less experience to show. But getting a top brand on your resume is a seal of quality. It kind of sells that information about them. And not just for the next jobs—in social settings. You know, you’re a young guy, you work for a top brand—brands like Apple or Google or Louis Vuitton—that says a lot more about you.
If you’re an older executive, maybe you’ve worked for multiple brands, there’s more information about your performance, there’s less unknown about you. So the brand has a higher functional aspect as well. Because it shows more of a certainty about you and your qualities as a worker. And of course, you have longer to cash in on that.
What does it look like, practically, if an early-stage startup wanted to implement these types of tactics of hiring top talent for less early on but they don’t necessarily have the brand power yet?
It means building the brand—not just in order to sell more or for a higher price. It means thinking about investing in the brand to attract talent. So if you realize this is a huge chunk of your operating expenses, for a mid-sized company, it takes investing in brand building but also leveraging the brand when it comes to hiring.
And that’s really communicating to top job applicants that the company might not be hugely known in the public, but that they are a strong name when it comes to their specialization, that they’re a leader in their subfield. But if they’re a weak brand, they should highlight other benefits. Like focusing on quality of life in lieu of focusing on the brand.
In working with companies, we find that most HR departments hire in a generic way. They don’t really leverage the brand. They don’t utilize the skills of their marketing team in order to attract employees. And I think it’s really missing the trick there.